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Insurance Audit Series 2 The proper insurance audit process

Insurance Audit Series 2: The proper insurance audit process

October 7, 2022


You’ve been contacted by an insurance carrier audit representative. or a 3rd party audit consultant. Now, what is the audit process? We’ll help you walk through what the process looks like and provide some valuable recommendations and things to look at.

General Tips

  • Remember the auditor is human and just wants to complete their job task like anyone else.
    • They have no personal ties to your business and don’t want to make the process more difficult than it must be. They’re not vindictive nor do they have any skin in the game. They are strictly working on behalf of the carrier to collect the information needed to complete the audit.
  • Try to respond in an ample amount of time.
    • If the auditor indicates that you’ve been unresponsive, it could lead to disruptions in your business.  Since the policy is likely an auditable one, they could proceed with a non-renewal notice for non-compliance with the plan. This will cause you significant time in finding a replacement solution.
    • The second thing they could do is include an automatic audit premium percentage that is predetermined in the policy endorsement section of your policy. We’ve seen up to 30% be applied to the general liability portion of the insurance plans for non-responsive audits.  
  • Always consult with your dedicated insurance agent prior to submitting your payrolls back to the carrier auditor. 
    • We have experience with hundreds of these and understand how to properly analyze payroll breakdowns. The payroll analysis is one of the major items a commercial lines agent should be advocating for you. Why? There are real premium dollars on the line.
    • Let’s look at an example: HVAC contractor has clerical/office staff, sales staff, estimators, owners, and in-field technicians. The rating for clerical and office staff is SIGNIFICANTLY different from the in-field technicians. If you’re lumping all payrolls into the HVAC general liability code, you are flat-out overpaying for your general liability insurance. Same concept with ownership. You need to make sure the owner’s payroll is subtracted from the minimum allowable figure used by the insurance carrier. The way in which the owner’s compensation is figured could be costing the organization way more in premium than it legally owes.  Find an agent who knows how to properly analyze your payroll.
      • NOTE: This applies to sales-based operations as well. An analysis of goods sold or manufactured matters. A manufacturer, retail sales operation, or distributor has a different valuation method to their associated general liability pricing. An agent who understands the proper analysis of these reports is key.
  • Maintain current records from sub-contractors.
    • It is good practice to request updated certificate of insurance documents prior to their renewal dates. Proactively, you can send out a reminder on the same date every year to obtain the most recent copy of insurance certificates. This will eliminate having to track down 20+ certificates at one time and be at the mercy of your sub-contractors and their office staff to complete your audit.
  • Provide ALL documents that are being requested.
    • The auditor is not going to leave you alone until they have EVERY document they need. They just don’t go away, so be prepared!

Refer back to our first audit blog on what items will be needed.

Check out the last blog in our audit series. We discuss how to properly breakdown payrolls, material costs, and separate payrolls by job type within your bookkeeping. With the end goal of saving resources, there is value in accurate reporting, which could result in saving significant dollars in premium.

We hope you find these tips helpful. It could potentially save you significant insurance premium dollars from year to year.  We deal with insurance audits on a weekly basis. We’d love to help you with your commercial insurance plans and be your trusted insurance advisor. State the conversation today by clicking on the image below.

Written by – Commercial Insurance Team at Hitchings Insurance Agency Inc.