Steps to Take Before and During Your Insurance Audit

• Provide your agent/broker with a complete description of operations or business, which will be used to determine applicable classifications.
• Provide your agent/broker with realistic estimated payroll, sales/receipts, vehicle or equipment unit count and other applicable exposures. A realistic exposure estimate will reduce the chance of large variation in audited versus estimated exposure at policy expiration.
• Provide your agent/broker with updates regarding any change in operations including ownership changes, large changes in your labor force, establishment of another operation in another state, etc.; this will ensure the issuance of applicable coverage endorsements prior to policy expiration.

• Properly maintain records required for audit with details about job categories, department breakdowns and information about key employees including their actual duties to allow for applicable adjustments to gross payroll.

• Upon contact by your insurance audit professional for an audit appointment, provide contact information for your accountant if you do not maintain your business records so as to facilitate the timely completion of your audit. Be prepared to answer additional questions with respect to personnel and job categories after the audit is completed with your accountant.
• Actively participate in the audit process or delegate to a responsible party when your insurance premium audit professional contacts you for an appointment.

Frequently Asked Questions

Q. Why are foremen/supervisors and/or managers classified the same as direct laborers?     

 A. Foremen, supervisors and or managers who have direct supervisory responsibility over a unit or a group of workers are exposed to the same risk to injury as the employees they supervise. As such supervisors, foremen and or managers with direct supervisory responsibility are subject to the same classification as the employees they supervise.

Q. Why do I owe additional premium?  

A. There are several factors which can contribute to an additional premium invoice and the most common are as follows

• Estimated exposure set too low
• Audited exposure is distributed differently than estimated exposure on the policy due to changes that may not have been reported or endorsed on the policy
• Classifications not allowed at final audit and or different but applicable classifications added at final audit
• Increase in staff that may not have been anticipated, payroll increase due to pay raises, overtime wages paid out, bonuses/commissions paid out during the audit period, thus increasing the auditable exposure
• Changes in your Experience Modification Factor after the inception date of your Insurance policy

Q. Why am I required to pay premiums for uninsured subcontractors?

A. Your insurance carrier may be required legally to pay a claim as a result of injury to uninsured "non-employee" or subcontractor, based on the courts determination of an employer/employee relationship that may have existed at time of injury. Therefore, your carrier must collect the proper premiums to cover a loss if one should occur. One way to eliminate these additional premiums is to ensure that you hire only adequately insured subcontractors and maintain their updated certificates of insurance on file.

Q. Why does my Experience Modification factor fluctuate?

A. Your Experience Modification Factor will fluctuate based on several factors

• Your years in business
• Years in business without a claim
• Severity, frequency and the number of claims filed
• Time since your last claim

Q. Why am I required to authorize my insurance carrier to release the audit worksheets to my agent/broker who represents my business?

A. The audit worksheets and the audit report contain sensitive personal and financial information that all insurance carriers are required to keep confidential and it is only released to third parties, including your agent/broker with the expressed authorization of the insured or business owner.

Q. What is the difference between the insurance carrier auditor and a vendor auditor?

A. Both the insurance company employee auditor and the vendor auditor are highly trained professionals who know the NCCI's and independent states' bureaus rules and are classification experts who will work with you diligently during the conduct of the premium audit. The only difference is the carrier auditor is a direct employee and the vendor auditor is an employee of the vendor company. Insurance carriers, large and small, find it necessary to contract with vendor business partners to fulfill their obligations under the insurance contract with respect to the completion of the premium audit. It is important call your agent/broker for clarifications if you have any question or concerns relating to the identity of a vendor auditor. 

The premium audit professional is a resource to the construction business owner at no additional cost who will assist in saving you time and money on your insurance program.

Keep in mind that the guidelines above follow general commercial insurance principles. Furthermore, it must be noted that these guidelines do not supersede conditions, definitions or endorsements contained in your insurance policy. It is recommended that you contact your agent or broker for any question relating to insurance coverage. 

Ted McKenna is the construction underwriting manager for AIG Small Business in Berkeley Heights, NJ. He may be reached by telephone at 908.679.3800 or visit www.AIGSmallBusiness.com.

Tags: 2007 March Issue, costs, financial,

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