If you have business insurance, it's probably going to
happen: Your insurance company will conduct an audit.
Insurance companies conduct audits to make sure the premiums
you're paying are in line with the amount of coverage
they're providing. According to Rhonda Hamel of Hamel and
Associates, an insurance audit and education firm in Alpharetta,
Georgia, the types of policies most likely to be audited are
workers' compensation and general liability. Some companies
also audit automobile, garage liability and business-interruption
policies.
Insurance companies base initial premiums on estimates that a
wide range of variables can affect. After a policy period ends,
auditors verify the actual payroll numbers and check other issues
that might affect the premium, then the company determines whether
they've billed accurately. If they under- or overbilled,
you'll receive either an invoice for the additional premium due
or a refund.
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For other insurance types, auditors examine records that support
the basis for the premium, such as sales, purchasing and inventory
documentation. If your automobile policy is being audited, for
instance, the auditor needs to confirm that the vehicles you are
using are the same vehicles described in the policy.
The initial contact from the auditor is either by phone or mail,
and you're generally given a week or two to prepare. The
auditor will let you know in advance what records need to be
examined so you can have those documents available. In most cases,
you can't deny the auditor access to requested records; chances
are, there's a clause in your policy stating that by purchasing
the coverage, you agree to the audit process.
If the auditor finds evidence of fraud, it's reported to the
insurance company and to the appropriate investigative unit of your
state government.
Hamel offers these tips to make the auditing process go
smoother:
- Have all requested records available. If, for example,
certain records are maintained by your accountant, either bring
them into your office or arrange for the audit to be conducted at
your accountant's office.
- Get certificates of insurance on any contractors not covered
by your workers' comp policy. Be able to prove that any
contract labor source doing work on your premises or on your behalf
has coverage, or you may have to pay additional premiums based on
those labor costs.
- Discuss record-keeping procedures with your insurance agent
and accountant. Proper bookkeeping may reduce your workers'
comp premiums. When you pay overtime, for example, you may be
entitled to a partial credit against your total payroll for those
hours.