Tom's Blog
When you took out your N.C. business insurance policy, your premium was figured by the information provided by you to your agent at the time of policy inception. A premium audit is designed to ensure your figured premium is still accurate at the end of your policy year. Although premium audits are a standard practice in the insurance industry, it is important to know how to prepare for a premium audit.
How Does an Audit Work?
Since your premium amount was declared before any business operations took place, the auditor must continuously review your premium at the end of your policy period to confirm the premium is an accurate reflection of what your business activity, sales, and payroll dictate.
The insurance auditor will notify you several weeks after your policy ends to outline what financial documents will be needed for review, based on the size/type of your business, as well as any on-line registration information that may be pertinent. Keep in mind that a standard premium audit should only take a few hours and you will always be fully informed when the auditor will visit your N.C. business for this process.
Typical Financial Records the Auditor May Review, but Not Limited to:
- State and Federal Tax Returns (quarterly or yearly)
- Payroll Records
- Cash Payouts
- Subcontractor Certificates of Insurance and Payments for Work Done (one of the most important)
- General ledgers
Keep in mind that if you generally maintain organized, precise records, this should not be a stressful situation once you receive notice of the impending premium audit.
How the Premium is Calculated After The Audit
Business owners are divided into specific classifications and are as follows:
- Subcontracted Work- This includes all contractors and other workers NOT on payroll. It is critical to maintain clear and accurate records of all payments made to contractors, proof of their insurance PRIOR to any work done, and costs of materials provided to subcontractors for jobs.
- Executives Supervisors– This classification includes all owners, partners, officers, and executive supervisors. Clerical or sales personnel do not fall into this classification.
- Direct Employees– This includes all construction employees that are on the payroll. *Some exclusions may apply.
After you have given the auditor assigned to your case all of the documents requested and your N.C. business has been inspected, the auditor will perform the audit review and you will be notified upon completion with the information on any necessary premium adjustment made. You can access a copy of your premium audit adjustment notice for your review and records. If you have any questions, feel free to contact our office at 866-869-3335.
