Premium audits help ensure that insurance premiums are aligned with the businesses and activities they are designed to cover. Your policy was written based on estimates at policy inception. As businesses change, policies need to change with them. Audits are performed after your policy has expired to determine the actual exposure. With information obtained from the audit to accurately reflect the state of your business over the policy term, your carrier can properly adjust the premium for your policy. Depending on your state and policy type, audits can be required by state insurance regulations and are common industry practice.
What information is needed to complete the audit?
Depending on the policy type, the auditor will need access to documents that relate to the policy being audited. This may include state and federal unemployment tax returns, payroll journals, individual earning records, general ledger, cash disbursements journal, check register, certificates of insurance, and financial statements such as profit and loss statements, income statements, balance sheets, trial balances and tax returns. Keeping complete and accurate records helps your business run more smoothly and will make your audit a simpler process.
Financial Statements contain sensitive information. Is it really necessary to provide this information?
The requirements regarding premium audits have changed drastically in the past few years. Financials are necessary to the audit process as they contain information vital to accurately assessing the business being audited. A financial report such as a profit and loss statement or an income statement helps to summarize the various types of accounts in the general ledger. These documents help your ISG auditor to more efficiently identify the accounts that may contain subcontract, contract or casual labor without having to review the general ledger in its entirety. It also assists the auditor in verifying the total payroll when leased payroll is utilized. ISG is committed to keeping information confidential to only those parties directly involved in the premium audit.
My coverage has been cancelled or is now with a new carrier. Do I still need to do an audit?
Yes. Audits are conducted for the period of time that coverage was provided for your business. The audit will encompass only that period of time which is subject to premium adjustment.
My coverage was replaced prior to the period you are requesting. What do I need to provide as proof?
A declarations page from the new carrier showing the policy dates, policy number and the name of the carrier, or a Letter of Assumption from the new carrier showing the same information.
The auditor has asked for “Gross Payroll”. What does that include?
Gross payroll includes regular pay,, overtime, tips, gratuities, bonuses, PTO, vacation, sick pay, all pre-tax items such as 401k, Sec 125 Cafeteria Plans, and other pre-tax insurance and investment plans, housing allowances or fair market value for housing provided, and full officer compensation.
The auditor has asked for “Gross Sales”. What does that include?
Gross sales include the revenue for all goods or products sold, manufactured, or distributed, certain operations performed and item rental. There are available deductions from gross sales, which include sales tax, returns and allowances, certain finance charges, and shipping or freight assuming those are shown as separate line item charges on billing invoices to customers.
I have a General Liability policy, and all of my subcontractors are insured. Why do I have to pay premium for “Insured Subcontractors”?
The premium you pay for “Insured Subcontractors” is not intended to extend coverage to those subcontractors. It is a measure of the vicarious liability that exists when utilizing adequately insured subcontractors. “Vicarious Liability” arises when the actions of the subcontractor result in a general liability claim that exposes the insurer to legal costs and potential judgments against the hiring contractor.
Will the auditor be able to determine if we owe money or are due a refund?
No. The auditor is not provided information for premium, payments, etc., and is not able to calculate that information. The auditor is able to provide you with the net chargeable amounts by classification, which will assist you in determining the overall outcome of the audit.