What is a business insurance audit?


Most commercial general liability policies are auditable which means fun is heading your way!  Seriously, it’s not too bad if you know what to expect.

What is a commercial insurance audit?

An audit of your insurance policy is a process that insurance carriers use to ensure that your rating factor is aligned with the premium being charged.  The most common rating factor that correlates to the price of an insurance policy is your GROSS SALES.

Let’s use an example:  

You own a landscaping business, and you project your annual sales at $300,000. You expect your annual exposure to any potential liability claims to be significantly less than a company that has sales of $34 million.  The company with the larger sales has 100 times more chances of something happening so the exposure to a loss is higher which is reflected in the calculation used to determine the annual premium.

 

What is involved in the audit process?

When you are asked by the insurance company to see your profit and loss statement, this is related to the audit.

An audit will look at things like:

  • Gross Sales
  • Increases or decreases from the prior year
  • Possible business classification change

The results of an audit could mean that you owe more in your premium or you get a refund.  It’s usually more desirable to owe money if you close your eyes really hard and think about it.  THIS MEANS YOU MADE MORE SALES THAN EXPECTED!!! Congratulations!

Something to keep in mind whenever you finance the premium through a premium finance company:

  • to keep from having a balance due at the end of the year that is not part of your finance agreement and thus payable in full, let your agent know of incremental increases or changes in gross sales.
    • For example – if you projected gross sales of $300,000 in January when you started your policy and by April you’re already at $200,000, you’ll want to adjust the projected gross sales for that 12-month policy period.  We can endorse your policy with the updates and digest smaller amounts of insurance premiums that could be due as a result instead of waiting for it all to collect at the end of the year and be payable all at once.

Let the professionals at Ryan Everet Insurance help when you need commercial insurance for your business. Call for more information and to speak to a licensed professional at 940-268-5112.

We love business insurance!