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All You Ever Wanted to Know About Insurance

Commercial Policy Audits Explained

Commercial insurance policies are audit-able, so what does that mean for you and your business?

General liability, workers compensation and garage liability insurance policies are issued on an estimated exposure basis. Our agency will review your operations with you and submit an application to an underwriter based upon your current exposures and your projections for the coming year.

Your policy will be issued on a yearly term. After each policy term expires, a phone, mail or on-site audit will be scheduled to determine your exact exposures during the policy term. This means a 5-10 minute discussion with a phone auditor, a 10-15 minute online survey form, or a one-hour (average) visit by a physical auditor.

Some large operations, particularly contractors, may require more time, depending upon exposures and condition of records. Auto-Owners auditors strive to be mindful of your time and conduct premium audits in an efficient manner. Each audit type will ask for a description of your overall operations.

If your policy was payroll-based, the auditor will need to look at payroll records for the policy audit period. These are typically comprised of the detailed payroll records you kept by employee, as well as the payroll information you submitted to your state unemployment commission. If you hired independent contractors or casual labor, the auditor will look at your check register and any 1099's issued during the calendar year for comparison. The auditor will ask about each person’s job duties.

If your policy was sales-based, the auditor will review your sales records, a profit and loss statement, and may compare these to your prior year’s tax records for reference.

For contractors, the auditor starts by reviewing employee payroll exposures. Next to be reviewed are subcontracted labor exposures, looking at amounts paid using your vendor-detail report, and the check register.

The auditor will examine any certificates of insurance provided by your subcontractors. The subcontracted labor exposure includes amounts the contractor pays for materials, installed by insured subcontractors. Be sure to keep your records in such a way that the auditor can determine which materials were installed by your employees and what was installed by subcontractors.

Stay in touch with us during the policy term. Your exposures can be adjusted based upon the performance of your business, so that your estimated exposures more accurately reflect your actual exposures.