An insurance audit is a review of a business's records, done after a commercial policy period ends, to confirm that the premium matched what the business actually did during the policy term. If you have received an audit notice, it does not mean something is wrong. It is a routine part of carrying workers' compensation, general liability, and several other commercial policies.
What an Insurance Audit Is
Most commercial policies are priced on estimates. When the policy is written, the premium is based on projected payroll, projected sales, or another rating basis. The audit compares those estimates with what really happened. If the business underestimated payroll or sales, or if employees were placed in the wrong job classifications, the audit finds it and the premium is adjusted. If the estimates were too high, the business receives a refund or a premium credit.
Why Insurers Audit Policies
Estimates drift, especially for businesses that are growing, shrinking, or changing what they do. The audit exists to reconcile the estimate with the actual numbers. It confirms the reported exposure, checks that the right classifications were used for rating, and keeps pricing fair for the business and the insurer alike. For some policies, state rules require the audit regardless of the business's size.
Which Policies Get Audited
Workers' Compensation
Workers' comp is the most commonly audited policy. The premium is based on employee payroll by classification code, plus any uninsured subcontracted labor. The audit verifies that payroll was reported accurately and that each employee's work was assigned the right classification. Misclassification, intentional or not, is the most common source of large adjustments.
General Liability
General liability policies are often rated on gross sales, total payroll, or the cost of subcontracted work. If a business grew substantially, or hired subcontractors without collecting certificates of insurance, the premium may go up at audit. Our guide to general liability insurance audits covers what to have ready.
Commercial Auto
Commercial auto policies can be audited to verify vehicle use, driver lists, and mileage. A business that added vehicles or changed how they were used during the policy term may need to reconcile those changes.
Umbrella and Excess Liability
Because these policies sit above the underlying coverage, an audit may confirm that the underlying policies were rated correctly. Errors in the base policies can affect the umbrella's pricing.
What Happens During an Insurance Audit
The details depend on the insurer and the policy, but most audits follow the same sequence. First, you receive a notice from your insurer or from a third-party audit firm working on its behalf, with instructions on what to provide. Next, you gather the records, which usually means payroll reports, tax forms such as the 941 and state unemployment returns, general ledger summaries, subcontractor certificates of insurance, and job descriptions.
An auditor then reviews the records against the policy. Depending on the audit type, that may happen entirely by mail, over the phone, in a virtual meeting, or at your place of business. Finally, the findings go to your insurer, and the premium is adjusted up or down. If you disagree with the result, most insurers have a formal dispute process.
Common Misconceptions About Insurance Audits
It does not. Audits are standard for policies with variable exposures like payroll or sales. Being audited is simply how the insurer matches the premium to the risk it actually covered.
Not always. If your estimated payroll or sales were higher than your actual numbers, you may get money back. The audit is about accuracy in both directions.
Size does not exempt a policy from audit, and some states require audits of certain policies regardless of size. The best approach is to keep good records and treat the audit as routine.
Mail, phone, and virtual audits are all legitimate audit types. What makes any audit accurate is complete, well-organized records, not whether the auditor is in the room.
You can always ask questions or contest the findings. If you believe the wrong classification code was used or your documents were misread, raise it with supporting documentation. Clear records resolve most disagreements.
Why Your Audit Might Come From a Company Like ISG
Many insurance carriers hire outside firms to conduct their premium audits. If you received an audit notice from ISG, we are conducting the audit on behalf of your insurance carrier, and the results go to them. Our premium audit page for policyholders explains each audit type, answers common questions, and has a checklist to help you prepare.
Frequently Asked Questions
Most auditable policies are audited once a year, at the end of each policy term.
The insurer may assess an estimated premium, which is often higher than what an audit would have produced, and in some cases the policy can be canceled.
For some policies, such as workers' compensation in certain states, yes. Others are required by the insurer's own guidelines.
Keep clean, organized records of payroll, employee roles, subcontractor certificates of insurance, and tax filings, and respond to the audit notice promptly.
Either the insurer's own audit staff or a third-party audit firm working on the insurer's behalf.
