An insurance audit for General Liability is performed by the insurance company at the end of each policy term to verify annual revenue was adequately reported and the policy reflects accurate rating information.
Best guess into the future is good practice
Underestimating revenue for an insurance program carries some risks. Say a business does $1,000,000 in sales and the general liability cost is based on that rating metric. To save money the business owner tells the insurance company their sales are only $500,000. If the insurance costs $5,000 under these assumptions you'd think the business saved $5,000. When the audit uncovers the $1,000,000 in sales however, last year's policy cost is adjusted retroactively by $5,000, due immediately. Then, in the interest of collecting a proper amount of premium for the new year, the insurance company updates the sales forecast for the current term to $1,000,000, resulting in an additional $5,000 charge. This is the double whammy scenario!
Money Back and Responding in Time
When sales come in below expectations most policies provide for return premiums. Some surplus and excess policies do not make such allowances however, so it is important to discuss projected revenues with your agent to avoid overpaying. Our advice is to estimate at the low end of expectations, but set money aside for the bill after the audit if you end up having a better than projected year.
The audit exercise is typically a simple process of providing evidence of sales (from your income statement and/or tax reports). Failure to comply in the time given though will result in an "assumed audit" with the carrier applying a revenue increase of 50% or more. This gives the carrier leverage until you finally sit down and provide them actual figures. It's lengthy to unwind this scenario, as billing gets complicated with bills from the 'assumed' audit. Best to get the audit done early.
Please call a Gordon Atlantic Insurance professional to discuss the best possible insurance program for you by calling toll free at 1-800-649-3252. Prefer to type versus talk? Click below for a return email or phone call.