Construction Business Owner, March 2007

In today's business environment, every business owner, large or small, knows that one of the fastest growing items in the operating budget is the cost of commercial insurance.

As a construction business owner, time and money are a vital concern to your daily business life. Your knowledge about commercial insurance contracts and the role of the insurance premium audit professional will enable you to reduce the stress related to the commercial insurance transaction and ensure that you pay only the correct premium.  

Insurance premium auditors are highly trained professionals who will work with you and your representatives in an effort to produce an accurate audit report. Your proper maintenance of business records is vital to produce an accurate audit report. Accurate premium audit reports can save your company time and money by assuring the audits are correct the first time, thereby eliminating the need for time consuming dispute communication and revisions or changes to the audit report.

What Is an Insurance Premium Audit and Why Is It an Essential Part of My Commercial Insurance Contract?

An insurance premium audit is a examination of the business owner's operations and accounting records. A premium audit is performed to determine the actual insurance exposure for the coverage provided by the insurance company.

While it is the contractual obligation within your insurance policy contract for your insurance carrier to conduct the premium audit, it is to your advantage to have the audit completed accurately and on time.

The results of your premium audits are shared with insurance regulatory agencies/bureaus that use this data along with that provided by similar businesses to develop a wide array of class data.

Insurance Regulatory Agencies/Bureaus

When conducting the insurance premium audit, all carriers are required to adopt rules established by the following:

• NCCI (National Council on Compensation Insurance)-The National Council on Compensation Insurance (NCCI), headquartered in Boca Raton, FL, is a voluntary, non-profit, statistical research and ratemaking organization. The NCCI's primary functions are the preparation and administration of rates, and classification systems for workers' compensation insurance in thirty-two states and the provision of similar assistance in about half of the remaining states.  Members of the NCCI include insurance companies, mutual companies, and insurance departments' competitive state funds. Member companies provide the NCCI with extensive information, such as payroll and claims costs, used to calculate the loss costs and rates published in NCCI Basic Manual for Workers' Compensation and Employers Liability insurance. The NCCI Basic Manual also sets forth the rules and procedures for workers' compensation insurance audits. NCCI is the licensed rate-making organization for these states. The NCCI's rules and classifications are incorporated into these state's workers compensation laws.

• Independent States' Bureaus-The following states maintain their own rule and rate-making bureaus: Delaware, Pennsylvania, New Jersey, New York, California, Michigan, Texas and Massachusetts. Some of these states' bureaus use the services of NCCI while others calculate their own rates and issue their own rules and manuals. NCCI's rates and rules are not applicable in these independent states' bureaus.

• Monopolistic States-Monopolistic states are states where only the state may legally provide workers' compensation insurance to business owners. The monopolistic states include North Dakota, Ohio, Washington, West Virginia and Wyoming. For these monopolistic states, stop-gap coverage and employers' liability may not be provided.

• ISO (Insurance Services Office)-ISO is a nationwide organization that functions as an advisory and rating organization for non-compensation insurance coverages such as commercial general liability. ISO offers a wide range of services: provides statistical information to develop loss costs for several lines of insurance (excluding workers' compensation); acts as an agency for filing coverage forms; loss costs and rules with state insurance departments; publishes and distributes manuals; shares rules and loss costs; acts in an advisory capacity to independent state rating bureaus; creates and applies property rating schedules; and develops standard forms of policies and coverages.