| Keep Your Insurance Costs Competitive with an Insurance Premium Audit |
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| Written by Ted McKenna | |
| Friday, 08 June 2007 | |
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What Types of Commercial Insurance Policies are Subject to Premium Audit? The following are examples of policies that your company may have with an insurance carrier that may be subject to premium audit:
Generally, your commercial insurance policy is written with an auditable or adjustable exposure basis such as payroll, gross sales, total construction cost, or total units of equipments or vehicles. The premium audit department from your insurance company is required to conduct an audit after your policy expires. Due to insurance regulations, the premium audit report must be finalized within a specified time frame to determine the actual exposure covered during the policy period. In addition you may be required, on certain occasions, to participate in pre-audits or interim audits (during coverage period shortly after policy inception). These audits will include a review and discussion of operations, ownership, employee's duties, claims information, non-employee usage, classifications and an exposure comparative analysis. The data obtained from these audits will be used to adjust exposure estimates or update policy file information on ownership changes, if any, with the use of an endorsement. During the pre-audit, interim audit and the annual audits, the premium audit professional may offer record-keeping suggestions where needed or requested and classification changes where deemed appropriate to reflect the actual operations of the insured's business. How Is my Premium Determined? The price (premium) for most of your commercial insurance coverages (workers' compensation, general liability and garage liability) will be based on payroll or remuneration paid or payable to your employees. In most states, payroll or remuneration means money or substitute for money and this generally includes the following:
During the course of the insurance audit, the audit professional will interview you about your business records, the business operations or projects. The audit professional may ask to personally observe the various operations of your organization by conducting a guided tour with you or your representative. Accurate records, information about your operations and the results of personal observations will enable the audit professional to assign the proper classifications to your operations. By maintaining your records in accordance with the following guidelines, your audit professional will be able to calculate the proper premium base amounts and assign these premium base amounts to the correct classifications. Furthermore, you should maintain accurate information about severance payments, moving expenses for your employees and other fringe benefits that were paid to your employees during the coverage period, as these items may be excluded. The following are payroll exclusions for workers' compensation insurance audits:
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