Cowart Insurance Agency Blog

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The ‘No Surprise’ Premium Audit

If you own a business, you are aware that one of the tasks that often comes with such ownership is an annual audit.

Most business policies are audit-able, particularly those covering contracting operations. No premium audit should ever be a surprise. It’s an annual occurrence.

Be sure to advise our agency of changes in exposure, payroll and receipts, and in your day-to-day operations. Addressing increases in exposure during the policy term allows you time to pay for the increase, rather than facing a surprisingly large audit premium and increase in policy renewal premium.

Are you pursuing new and larger contracts? Are you looking to travel farther, or advancing into new product or service areas to grow? Keeping our agency in the loop on such ventures is important.

There are three contracting classification issues that can be a surprise when businesses are audited:

  • Executive supervisors exercise control through foremen who oversee the actual work. Without this distance from actual field operations, the executive supervisor classification is not applicable. In this situation, the principal would most likely be considered a carpenter.
  • Paper contractors, which have few or no employees and subcontract most or all operations, are rated appropriately with one of the carpentry classifications.
  • Materials provided to insured subcontractors must be accounted for and provided when a business is being audited. The cost of these materials will be included in the appropriate insured subcontractor classification. Material costs are a part of the definition of an adequately insured subcontractor per ISO (Insurance Services Office), which provides insurance companies with statistical services.

Representatives at our agency are always happy to guide and assist you with any classification or policy questions.