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Cowart Insurance Agency Blog

All You Ever Wanted to Know About Insurance

Commercial Insurance policies are auditable. 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 based on your projections for the coming year to the insurance company. From that application, a policy can be issued. 

Our policy and subsequent renewals will be issued on a yearly term. After each policy term expires, a phone, mail, or in-person audit will be scheduled to determine your exact exposures.

This means a 5-to-10-minute discussion with a phone auditor, a 15-to-20-minute online survey form, or a one-hour (average) visit by a physical auditor. Some large operations may require more time, depending upon exposures. The auditors strive to be mindful of your time and conduct your premium audit in an efficient manner. 

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 laborers, the auditor will look at your check register and any 1099s 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 and 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, the check register, and a profit and loss statement.  

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. 

It's important to stay in touch with our agency for any changes in business exposure during each policy term. Let us know of substantive changes to your operations and exposures.