What Is A General Liability Insurance Audit?

A general liability insurance audit looks at the payroll and risk exposure of your company. An audit ensures that you’re paying the correct amount for general liability insurance and that you’re obtaining enough coverage for your company.

What does an insurance audit mean?

Isn’t the word “audit” the absolute worst? The IRS and government personnel are usually the first persons that come to mind when they think about financial investigations. An insurance audit, on the other hand, is a separate process and far less terrifying than an IRS audit.

By the end of this article, we hope you’ll have a better understanding of what an insurance audit is, why carriers conduct them, and how you can prepare so you’re not caught off guard.

What is an insurance audit?

An insurance audit is a means for a carrier to figure out how much risk they actually insured in the previous year. During the year that your policy was in place, the company could have undergone significant changes.

The premiums that carriers charge for general liability (GL) and workers compensation insurance are determined by a number of factors. Certain estimates that you self-report to the carrier, such as sales and payroll, are among the most essential of those criteria. They accept your word for it that these data are correct…at least for the time being.

The majority of GL insurance are priced primarily on the basis of sales “rating criterion.” During the application process, the carrier inquires about your predicted revenue for the next 12 months, and then issues the policy based on that information.

Payroll figures are used to price workers’ compensation (and, in some situations, general liability). Of course, the riskiness of the work that employees do is important, but that riskiness is represented as a number “The entire payroll for those employees is multiplied by a “class modifier” that is multiplied by…you got it…the total payroll for those employees.

If you expect $X in revenue and $Y in payroll, and those estimates treble the following year because business is booming, the carrier was taking on more risk than you paid for that year.

As a result, the carrier does an audit. They ask you for your actual numbers from the previous year, and then charge you the difference between what you paid and what the premium should’ve been, using the same rate that you were promised at the start of the year.

As a result, the price is shown as “estimated premium” or “advance premium” on these plans. It’s the most accurate estimate of the policy’s cost. Once the policy time has ended, the real price is decided.

What’s the timeline of an insurance audit?

  • You fill out an application that details the number of employees, their job titles, and the amount of payroll each position receives.
  • Your broker submits your application to a number of carriers, negotiates, gathers estimates, and then delivers them to you.
  • The carrier sends you a letter with a “audit worksheet” within 3 months (typically sooner).
  • You fill up the spreadsheet with your previous year’s real payroll. Let’s imagine it was 10% greater than anticipated.
  • The carrier examines the policy and then offers an endorsement, revising it and charging a higher premium.
  • You pay the additional fee if you agree with the audit results, and you’re ready to move on to the next year!
  • If you believe there was an error or misunderstanding, you can challenge the audit, and your broker can force the carrier to recalculate. Carriers will only undertake on-site audits in exceptional circumstances. There’s no reason to be concerned! This is often a brief meeting during which the carrier’s agent inspects the operation and double-checks the figures with you.

Here’s an example:

There are two categories of staff employed by a helmet company: clerical and testing. Employees in the clerical department send emails and crunch figures. The testers have a more distinctive duty in that they must determine the effectiveness of the helmets. Tester Joe is in the category of “dropping from ladders,” whereas Tester Susan is in the category of “look out, sledgehammer incoming.”

What does an insurance auditor look for?

An audit is a review of your company’s operations, records, and books of account to determine your actual insurance exposure, including premium basis, classifications, and rates for a given period of time.

Do general liability policies get audited?

An insurance firm conducts a general liability insurance audit when it checks a policyholder’s payroll records and income statements to evaluate if the policy represents an accurate rating of the company’s liability risk. The audit is performed by a professional auditor, either from the insurance agency or from an outside firm, who assesses the company’s risk. The audit’s findings do not influence a company’s worth or tax rate, but they do affect its level of liability protection.

What’s at stake during an insurance audit? What steps should your practice take if you receive an audit letter? We answer all of your most pressing questions about the process.

If your clinic files claims to health insurance payors, you’re probably aware that audits are widespread. It’s difficult to deal with an audit notification from a payor. The intimidating audit procedure might exacerbate that feeling of helplessness. Let’s talk about what you should know about health insurance audits and how you should prepare your practice for one.

How is an insurance audit initiated?

The most common way for an insurance audit to begin is with an official letter advising the practitioner of the payor’s intention to conduct an audit. A records request will frequently accompany this notification, allowing the payor to examine a sample of your records and other documentation.

Under HIPAA, maintaining the confidentiality of patient information is critical. The provider agreement, on the other hand, frequently allows for the sharing of patient records to health insurers.

What is the insurance company looking for?

Whether conducted by the Centers for Medicare and Medicaid Services or a private insurance business, audits seek to uncover fraud, abuse, and waste in the healthcare system. Audits, on the other hand, can help practitioners encourage good medical billing procedures and stay in compliance with the law.

Pre-payment review and post-payment review are the two types of general categories for health insurance audits. Pre-payment review, as the name implies, entails a review of your claims before they are paid. Your claims are examined after you have been paid, which is known as post-payment review.

Responding to an InsuranceAudit

The way you respond to an audit can set the tone for the rest of the process and even shape it. Take audit notices very seriously. When you receive an audit notification, complete the following steps:

  • Don’t be alarmed! In the healthcare industry, audits are a given. An insurance audit does not always imply that your practice has been doing something wrong.
  • Examine every word of the audit notification with great care. When was it sent, and when does it have to be returned? What is the total number of patient charts and other documents that have been requested? Is the audit being conducted for a specific reason?
  • Attempt to ascertain the audit’s scope. This will vary depending on who is auditing you and how much information they supply, but it can aid in determining the scope and impact of the audit.
  • If you have a compliance officer or someone on your team who is responsible for audits, notify them right away. This will allow that staff member to start gathering the needed information as soon as possible, maximizing the amount of time before the records are due back to the auditor.
  • Determine whether you need to engage an attorney if you have concerns about the audit. The skilled health care attorneys at Jackson LLP can help your practice stay in compliance with federal healthcare rules.
  • Once you’ve figured out what’s being asked, gather all of the information listed in the audit letter. Medical records, bills, and other documents may be included. In most cases, a copy of the entire medical record is required. Many commercial payors will ask a physician to sign a paper stating that the records provided are the patient’s complete medical record.
  • Stick to the deadline. Unless an original is specifically requested, send a copy of everything that was requested. If you can’t find a specific document or file, ask the auditor for extra time.
  • Your practice should thoroughly analyze and rectify the issues discovered during the audit after it is completed. Use the audit’s findings as a tool for learning about best practices and training your employees. This will also help you reduce your risk in the future.

Can I refuse an insurance audit?

What happens every year that generates a lot of paperwork and takes time away from your business? You don’t have to second-guess yourself. Your insurance company requires an annual business insurance audit.

Completing audit paperwork may seem like a time-consuming chore to most of our business clients, but it saves them a lot of time and stress in the long run.

It’s the only method for an insurance company to accurately calculate your premium.

The liability element of a business insurance was based on owners’ estimates for the following year — income – when it was offered to contractors and many other firms. Payroll and sales are two areas where you can save money. The premium for Worker’s Compensation coverage was calculated based on the projected payrolls of the business owners. This information was supplied to the best of your ability at the time.

However, at the end of the policy term, those projections must be compared to actual results.

The company has the right to alter your premiums in accordance with your contract terms. You may be eligible for a premium refund if your estimations or estimates were too high. You may owe the corporation an extra premium if they were too low.

In one of two methods, usually.

A form requesting voluntary reporting of your actual figures and supporting documentation may be mailed to you. Alternatively, the insurance company may send an auditor to your location to review your accounts, which is more common in the case of larger enterprises. In either scenario, you must cooperate with the audit request under the terms of your contract with the company.

If you do not respond to the request within a reasonable amount of time (typically 30 days), the insurance company may estimate your previous year’s stats – almost probably on the high side – and charge you a higher premium. Alternatively, the firm may decide to cancel your coverage. In that instance, Eldredge & Lumpkin will not be able to develop another policy for you until you comply with the audit request from the previous year. Your company will be without insurance for as long as it takes to remedy the issue, which could be weeks or months. If it includes your Worker’s Compensation coverage, this could put your company in breach of state law.

How do I prepare for an insurance audit?

Make sure you have all of the records you’ve been asked for. If your accountant, for example, keeps particular records, either bring them into your office or arrange for the audit to be conducted at his or her location.

Obtain insurance certificates for any contractors who are not covered by your workers’ compensation policy. You may have to pay higher premiums based on labor expenditures if you can’t establish that any contract labor source working on your premises or on your behalf has coverage.

How do you survive an insurance audit?

Although a premium audit may appear to be time-consuming, it is not. Here’s how to be informed and prepared during the term of your coverage.

When a workers’ compensation policy or other type of small business insurance policy reaches the end of its term, it is usually subjected to a premium audit. What is the explanation for this? Your insurer calculated your policy’s premium based on projections of your payroll and employee statistics, as well as gross sales, during the course of your policy’s term, and now wants to determine whether those calculations were accurate. (If this is the case, your premium for the remaining term may be modified up or down.)

Although a premium audit may appear to be time-consuming, it is not. Taking certain actions ahead of time, on the other hand, can make things considerably easier for you and your firm. Here are five crucial points to remember if you’re facing a premium audit.

1. Keep track of your payroll and sales data and make sure it’s up to date.

Compare your real payroll and sales data to the figures in your policy documents on a regular basis. If your payroll and sales appear to be significantly more or lower than expected, call your insurance agent so that modifications can be made. This guarantees that you have the payroll or sales data that your insurer will require during the audit, and reduces the chances of a big premium adjustment at the conclusion of your policy’s term.

2. Correctly classify your employees

The sort of work your employees undertake determines your workers’ compensation premium. As a result, it’s critical to keep your job categories up to date and precise, as your insurer may want to see this information during an audit.

The National Council on Compensation Insurance (NCCI) sets and maintains the codes used to categorize employees for workers’ compensation purposes, however a few states have their own worker categorization systems.

3. Keep Financial Documents Organized

Providing up-to-date financial records, whether your most recent quarterly 941 or Schedule C tax forms or your general sales ledger, is an important part of a premium audit. The insurer will also want to see high-level information about all firm owners, officers, and partners, including their titles, places of employment, stock ownership percentages, and earnings for the audit period. When it comes time to file your premium audit, keeping these records organized and easily accessible can make the process much faster and easier for you.

4. Examine your 1099s

Certain contractors or subcontractors may be qualified for coverage under your workers’ compensation policy under state workers’ compensation rules, even if you issue them a 1099 rather than a W-2. Because the definition of “employee” for insurance purposes varies by state, it’s critical to double-check that anyone you’ve designated as an independent contractor isn’t actually an employee.

5. Submit your audit reports on time

Your insurer will request that you provide the required paperwork and information by a certain date. Make sure you stick to the deadline. It will make the process run more smoothly and efficiently, as well as ensure that any premium adjustments are correct.

A premium audit is typically a short process, with results arriving within a few weeks of submitting the needed payroll and/or sales information. You can be sure you’ll be ready for the audit if you stay organized and prepare the documents and information your insurer will want to examine during the audit.

The information in these papers is intended to be general in nature and to be used as a guideline. It is not intended to be taken as legal advice. The Hartford does not guarantee that implementing any of the views or recommendations provided herein will: I eliminate any harmful circumstances at your business sites or in your business operations; or (ii) constitute an appropriate legal or business practice. The Hartford assumes no responsibility for the control or correction of hazards or legal compliance with respect to your business practices, and the views and recommendations contained herein do not imply that we will determine or warrant that your business premises, locations, or operations are safe or healthy, or that they comply with any law, rule, or regulation on your behalf or for the benefit of others. Readers should consult their safety consultant, attorney, or business consultants if they have specific safety, legal, or business issues or concerns about the information presented in these pages.

Hartford Fire Insurance Company and its connected property and casualty insurance firms are located at 690 Asylum Avenue in Hartford, Connecticut 06155.

Certain insurance policies differ by state and may not be available to all businesses. All Hartford coverages and services discussed on this page may be offered by one or more of The Hartford Financial Services Group, Inc.’s property and casualty insurance business subsidiaries. Sentinel Insurance Company, Ltd., Hartford Casualty Insurance Company, Hartford Lloyd’s Insurance Company, Property and Casualty Insurance Company of Hartford, Hartford Underwriters Insurance Company, Twin City Fire Insurance Company, Hartford Accident and Indemnity Company, and Hartford Fire Insurance Company are among the companies that write this insurance in Texas. Sentinel Insurance Company, Ltd. (CA license # 8701) and its property and casualty insurance company affiliates, 690 Asylum Avenue, Hartford, CT 06155. In CA by Sentinel Insurance Company, Ltd. (CA license # 8701) and its property and casualty insurance company affiliates, 690 Asylum Avenue, Hartford, CT 06155.

ADP, LLC’s insurance agency, Automatic Data Processing Insurance Agency, Inc. (ADPIA), is a subsidiary of ADP, LLC. All insurance products shall be provided and sold exclusively by ADPIA, its licensed agents, or licensed insurance partners at 1 ADP Blvd., Roseland, NJ 07068. CA license #0D04044. There are 50 states where you can get a license. It’s possible that not all services are offered in every state. One of ADPIA’s carrier partners is The Hartford. The Hartford does not have an exclusive agent with ADPIA. This material isn’t meant to be taken as legal or tax advice. Contact a tax or legal specialist if you have any queries.


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Do I have to complete an insurance audit?

A general liability insurance audit, or any other sort of insurance audit, verifies that you’re paying for and receiving the proper level of coverage. If you don’t complete an insurance audit, your insurer has the right to: Increase your rate. This can be a substantial sum in some circumstances.

What are the 3 types of audits?

  • External audits, internal audits, and Internal Revenue Service (IRS) audits are the three basic types of audits.
  • Certified Public Accounting (CPA) firms frequently conduct external audits, which result in an auditor’s opinion that is included in the audit report.
  • An audit opinion that is unqualified, or clean, signifies that the auditor found no substantial mistake during his or her evaluation of the financial accounts.
  • External audits might entail a look at both the financial statements and the internal controls of a corporation.
  • Internal audits are used by managers to make process and internal control changes.

How do I prepare for a general liability insurance audit?

A notice of a “General Liability Audit” might be stressful for a business owner, even if that isn’t the goal. An audit is conducted to check that you have paid the correct premium for your exposure, or the item for which you have insurance. Your first deposit premium was calculated using your best estimate of auditable risk (payroll, sales, etc.). At the end of the policy period, insurance firms use a Premium Auditor to compare your “actual” auditable exposure to your “estimated” amount. The actual premium is determined by this. A Premium Audit may be required for each expiration policy period to answer the following questions:

In the world of contractors, things can change quickly from day to day and year to year. When a contractor receives notice of an audit, for example, we can assist the policyholder (typically the business owner) (the insurance company and your agent). We’ll need the following documents to conduct the audit:

This may appear to be a lot, but the majority of this material can be easily emailed or mailed to the auditor, and any further information can be acquired via phone or fax. When the auditor receives this information, he or she will call to discuss the audit’s findings. Having someone to talk to reassure us that the policy and audit results are sound, which gives the business owner peace of mind. Please contact our customer service department or your independent agent if you have any queries regarding this process.