Understanding Your Insurance Premium Audit

1. What is an Audit?

A report of collected information of an insured's operation and accounting records used to determine the actual insurance exposures for the coverages provided.

2. Why and when is it necessary?

The original premium on the policy is an estimated premium. The final audit determines the actual premium. When actual exposures differ from the estimated exposures, an adjustment must be made to the premium of the expired policy.

3. What insurance coverages require an audit?

• Workers Compensation
• General Liability

  	Premises/Operations Liability
  	Products Completed Operations
  	Independent Contractors

• Garage Liability

4. How should your records be kept?

Proper recordkeeping will permit the auditor to apply any allowable credits to your final premium. When the auditor requests payroll information, this includes remuneration. Remuneration means money or any substitute for money, and includes the following:

	Wages	Vacation Pay	Statutory Payment
	Commissions	Sick Pay	Tool Allowances
	Bonuses	Tips	Value of Board, Lodging
	Overtime Pay	Payment of Piece Work	Store Certificates
	Holiday Pay	Profit Sharing Plans	Other $ Substitutes
	Overtime
	In most states, the amount paid in excess of straight time pay can be deducted if the excess can be verified in your records. You must maintain your records to show overtime pay separately by employee and in summary by classification of work.
	Division of Payroll
	Generally, a division of an individual employee’s payroll to more than one classification is not allowed, except for construction or erection workers. In these cases, the payroll may be allocated to each type of work performed if proper records are kept. Your records must show the number of hours and amount of payroll for each type of work. Without an adequate breakdown, the full payroll must be charged to the highest-rated classification.
	Subcontractors
	All subcontractors that you use must provide you with current certificates of insurance proving they have Workers’ Compensation insurance for the time that work is performed. If the certificates of insurance are not available for review, the subcontractor amounts must be treated as payroll and appropriate premium charges will be made.   For General Liability, it is necessary for contractors to secure a Certificate of Insurance from each subcontractor they hire. Without a Certificate showing limits of liability of $300,000 or more, it will be necessary to classify these subcontractors as employees.

5. Who conducts the audit?

If the conditions of your policy require a physical audit, a Premium Auditor will contact you for an appointment. The Premium Auditor will examine and audit all records that relate to your policy.