Your past experience with insurance audtis has probably set your opinion of whether they are routine or something that you dislike. if you've found audits challenging, consider following these tips help your business avoid audit surprises and make the process smoother in the future.
Don’t underestimate revenues or payroll
Be as accurate as possible when estimating sales, payroll and subcontracted costs at the beginning of the policy term. The more accurate your estimates of these metrics; the less of an adjustment required at audit. Don’t overestimate and overpay because that can impact cash flows; however, don’t significantly underestimate either because it can result in large amount due when audited. For example, a business estimates sales at $1,000,000 and the premium is $5,000. However, at policy term end, the audited sales are $2,000,000. The business now owes an additional $5,000 premium for the $1,000,000 in sales that was covered by the policy. This amount is due right away.
Get certificates of insurance for all subcontractors
If your business hires subcontractors, collect a certificate of insurance up front. Subcontractors who are not adequately insured may become the responsibility of the individual who hires them. This can result in an additional charge to your general liability and/or workers’ compensation premiums. Review certificates to be sure that:
- your company is listed as the certificate holder;
- if your company is being listed as an additional insured... request a copy of the additional insured endorsement with the certificate;
- there is coverage for applicable general liability, auto liability, umbrella liability and workers’ compensation. For workers’ comp, if the subcontractor is a sole proprietor or partnership, be sure that owners aren’t excluded from coverage; otherwise, they will be rated on and covered by your policy;
- limits for applicable general liability, automobile liability and umbrella liability are at the per occurrence, aggregate and product/completed operations aggregate levels that you expect and/or that are outlined in any contracts;
It’s a good idea to set a follow-up procedure to obtain updated certificates prior to the expiration to ensure that coverage remains in place.
We recommend that certificates should only come from the insurance agency or company to ensure accuracy. Having certificate documentation will help prevent issues at the time of audit. Retain copies of certificates even after the job is done in case a situation arises at a later date and you need to provide evidence that the subcontractor had insurance at that time.
Communicate with your insurance agent
If you anticipate that your actuals will be significantly higher than the estimates used to set the policy premium, pick up the phone and talk with your agent. You may land a big client and have an unexpected increase in sales or need to hire more employees due to an expansion. By making an adjustment to your policy mid-term, it avoids getting a lump-sum due at the same time that the premium is due for your renewing policy.
If you have questions about audits or your policies, please contact us for assistance.