What is a Premium Audit?
An audit is the report of the findings from an examination of your operations, records and books of account to determine the actual insurance exposures for the coverages provided.
When is an Audit Necessary?
An audit is necessary after the expiration of a policy, which has variable premium base. Examples of coverage subject to audit:
- Workers Compensation
- General Liability
- Automobile Liability
- Garage Liability
Why is an Audit Necessary?
An audit is necessary to determine the correct exposure of premium base for the insurance coverage afforded. If necessary, an adjustment will be made to the premium that was estimated when your policy was issued.
Who Will Conduct the Audit?
A Premium Auditor will contact you for an appointment if the conditions of your policy require a physical audit (an audit that is conducted at your location). If the policy information can be furnished on voluntary basis, the company will send the necessary forms to you to complete, and submit back to our office.
What Records will be Needed?
The Premium Auditor will examine and audit all of your records that relate to your policy. The records that will be needed will vary, depending upon the type of coverage you have. In most cases, the Premium Auditor will be able to obtain the necessary audit data from two or more of the following records: Journals, Ledgers, Tax Reports, or Individual Earning Records. In the course of the audit, the Auditor may also ask some questions about your records and personally observe the various operations of your business.
How Should Your Records Be Kept?
Often there are allowable credits according to insurance manual classification and rating rules. The Premium Auditor will be able to give you the credits to which you are entitled if your records provide the necessary details.
Many of the premiums for your insurance are based on payroll, which is defined as total remuneration for services performed by an employee. Remuneration, in most states, means money or substitutes for money, and includes:
- Vacation Pay
- Payment for Piece Work
- Sick Pay
- Holiday Pay
By maintaining your payroll records in accordance with the following guidelines, you might reduce your insurance costs.
In most states, the amount paid in excess of straight time pay can be deducted if the excess can be verified for your records. You must maintain your records to show overtime pay separately by employee (overtime credit is not applicable in NV, PA or DE).
Division of Payroll:
Division of an individual employee's payroll to more than one classification is not allowed.
For construction, erection, or stevedoring operations, the payroll of an employee 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. If you do not keep such a breakdown, the full amount must be charged to the highest rated classification to which the employee is exposed.
Under most Workers' Compensation laws, you will be held responsible when an uninsured subcontractor's employee is injured. To protect yourself, be sure to secure a Certificate of Insurance showing workers' compensation coverage from each subcontractor you use. If such evidence of insurance is not available at the time of audit, the subcontractor's payroll must be added to your payroll.
For General Liability it is also necessary for your contractors to secure a Certificate of Insurance from each subcontractor they hire. Without a Certificate showing limits of liability equal to or greater than yours, it will be necessary to classify these subcontractors as employees. Great American Insurance recognizes occurrence limits of $500k to be considered adequately insured.
The contents of this brochure follow general insurance principles and it is not intended to supersede any definitions or conditions contained in your policy. We recommend that you bring any questions concerning your insurance coverage to your Agent's attention.
For questions related to your audit, please contact the auditor listed on the cover letter attached to your self-audit form, or contact the Specialty Premium Audit Department at Great American Insurance at email@example.com or 1-800-221-7274.