When you purchase a tailor-made commercial insurance policy, the insurance company will typically calculate premiums as an estimate of the exposure base. More specifically, you will have to predict changes that may occur in your business aspects such as payroll, cash flow, liability exposure, and sales, from which a suitable premium amount will be determined. Since the premium is just an estimate, a premium audit will be necessary to determine the accuracy of the prediction after a certain period, say, a year. In case the audit reveals that your prediction was wrong, the insurance company will review your commercial insurance premiums accordingly. Here’s some more information about premium audits for business insurance.
Why a Premium Audit Is Necessary
In 2016, the annual growth rate of U.S. startups was 75.62%. This shows just how much change a business can experience in just one year. While some enterprises scale with time, others downsize, lose revenue, and sell some of their assets. It is worth noting that personal insurance policies such as home and car insurance have more stable and predictable changes, unlike business insurance coverages. With this in mind, ensure the insurance company audits your business insurance premiums, especially if your business operations have significantly changed during the policy period. For instance, if you hired new employees, laid off some, bought new equipment, and expanded your business premises, a premium audit will be necessary to ensure that you’re paying accurate insurance costs. In other words, a business premium audit prevents you from either over-insuring or underinsuring your business.
Documents Needed for a Premium Audit
When the insurance provider comes to audit your premiums, they will be more interested in the changes that occurred in your business. As such, you will need to provide records of your business operations for the policy period. The insurer will then compare these records against what you predicted for your business and make the necessary changes in your premium in case they don’t tally. Therefore, the best way to prepare for a premium audit is to have the following records in place:
- Sales records – The insurer will be interested in knowing if there have been any changes in your sales. As such, provide accurate records of your sales, including income statements and returns.
- Payroll records – Here, present the records of your workforce payments, including the number of working hours, type of work done, overtime payments, and other payroll details.
- Subcontractor records – If you hire subcontractors in your business, ensure you ask for their certificates of insurance. Additionally, track their payments by work done and keep other essential details.
Take note that some insurance companies may ask for more information than these, and hence, be flexible.
Benefits of a Premium Audit
Several small businesses in the U.S. are often underinsured. While some are aware of their insurance situations, others are oblivious to this issue. The best way to keep up with your insurance needs is by asking your insurance provider to audit your premium during your annual review. In case you’re paying lower premiums than what your business requires, the insurer will increase your insurance costs. On the other hand, a reduction in the size of your business will enable you to save by reducing your premiums. This will protect you from claim denials or inadequate coverage in case a peril occurs in your business.
If you want to pay accurate premiums on your business insurance, ensure your insurance provider conducts regular premium audits, preferably every year. For assistance with all your business insurance needs, contact the experts at John E. Peakes Insurance Agency today.