If you are self employed you need to understand the need and concept of the insurance audit. Most General Liability and Worker’s Compensation Policies are auditable. When a GL or WC policy is written it is normally based on an estimated exposure. At the end of the year the insurance company has the right to go back and adjust your premiums based on your actual exposure. It is basically pay now or pay later. It is really important that you have an accurate estimate going into the policy period. The reason for this is most people don’t understand that at audit time you actually can get hit twice. First they will go back too the prior year and adjust the estimated exposure (could be payroll, sales, number of units etc) with the actual exposure. However then because of the timing the new policy period has already started. They will then go too the new year and adjust the estimated payroll for the new policy period. Unexpected large audits are big reason for upset clients. And it can be controlled by making sure your estimated exposures are accurate thru out the year. Some companies are now coming out with pay as you go worker compensation policies. You would actually pay your worker compensation premium when you do your payroll. Knowing and understanding the audit process is a key too being successful.
http://auto.erieinsurance.com/insurance-audit-information.pdf
Monday, February 22. 2010