| All companies covered by insurance must respond | | | | readily available for the auditor when they arrive |
| to insurance audits annually. These audits can be | | | | on the premises. This includes easy access to |
| good experiences if managed correctly, or can | | | | contractor certificates of insurance demonstrating |
| become stressful events resulting in wasted time, | | | | that the coverage is current and meets required |
| premium increases and adjustments or even | | | | limit levels. The upfront preparation and |
| cancellation of policies. By knowing what to | | | | organization by the company can prevent ongoing |
| prepare and maintaining organized records, you | | | | audit responses and adjustments later on. |
| can survive your insurance audit. | | | | Another 'good audit' experience is no surprises |
| What is an insurance audit? | | | | such as large premium adjustments, amounts due |
| Policies are audited to ensure that the premium | | | | or returns after the audit is complete. |
| charged by the insurance company reflects their | | | | What makes for a 'bad audit' experience? |
| actual exposure, which was estimated at policy | | | | If the company cannot readily access the |
| inception. | | | | requested data, a variety of unwanted events |
| Insurance audits are performed by employees of | | | | can occur including: |
| the insurance company or independent auditors | | | | ?Excessive waste of time for the auditor and |
| hired by the insurance company; in some cases | | | | company personnel |
| forms will be sent to the business for a 'self audit' | | | | ?Company (Policy holder) gets a bill for a large |
| process. In all cases, the business must prepare | | | | additional premium for the audit period and next |
| information and utilize the time of its employees | | | | period |
| to respond to the audit. The level of personnel | | | | ?Company must immediately contact contractors |
| required varies based on the company's size. | | | | requesting certificates and forward to auditor for |
| Personnel required might include the Office | | | | premium adjustments, requiring significant time for |
| Manager, Accounting Manager, Controller or | | | | both parties. |
| external CPAs. Data is collected and provided to | | | | What are the potential consequences of a bad |
| the insurance auditor by the company personnel. | | | | audit? |
| What is the auditor looking for? | | | | The results of a bad audit can be severe, |
| Insurance companies audit certain Liability policies | | | | especially if the audit resulted in additional |
| and ALL Workers' Compensation policies. The | | | | premiums. Policies may be cancelled due to |
| audits collect exposure information estimated | | | | non-payment of the additional premium or for |
| when the policy was written and compares it to | | | | non-cooperation in the audit process. The |
| the actuals. This data is then used for determining | | | | company could have their credit affected. Staff |
| and adjusting premium amounts. Information | | | | will need to dedicate additional time to correct or |
| typically (though not exclusively) required includes | | | | adjust audit discrepancies, resulting in lost |
| the following: | | | | productivity and a disruption of the work routine. |
| * Liability Policies | | | | An insurance company could cancel the easy 'self |
| ?Gross company sales | | | | audit' process and insist on 'in person' audits. |
| ?Independent contractor costs (insured and | | | | How do you avoid a 'bad audit' experience? |
| uninsured) | | | | Two words - be prepared. Understand what is |
| ?Payroll for certain types of exposures | | | | auditable and what the audits are based on. Have |
| * Workers' Compensation Policies | | | | the requested financial information available for |
| ?Actual employee payroll | | | | the auditor. Present up-to-date insurance |
| ?Cost of independent contractors if no certificate | | | | certificates for all vendors and contractors |
| or proof of other coverage is provided | | | | indicating limits meet requirements and coverage |
| This information may be in the form of payroll | | | | dates are current. Be sure the certificates are |
| records, Federal Form 941, Financial Statements, | | | | tracked and kept up to date. The best way to |
| Check Registers and Certificates of Insurance | | | | manage contractor certificates is by maintaining |
| from contractors/vendors. A company's use of | | | | an automated certificate tracking system that |
| contractors can be determined by information | | | | provides policy expiration notices and allows you |
| disclosed in the financials or check register. | | | | to attach images of the certificate for quick |
| Contractors/Vendors that do not have valid | | | | access during the audit, helping to avoid |
| insurance certificates proving independent | | | | unnecessary adjustments to the premium. |
| coverage will be added to the company's | | | | Automated systems - notably insurance and |
| exposure totals. Not only do the possibly | | | | vendor tracking software - are available on the |
| uninsured contractors/vendors increase a | | | | market to help in this process. |
| company's exposure to loss, they can also cause | | | | To survive your insurance audit, make sure you |
| significant increases in their premiums. | | | | know what the auditor wants in advance, collect |
| What makes for a 'good audit' experience? | | | | and organize the information and be ready to find |
| The main requirement for a 'good audit' | | | | additional data quickly. Avoid the pitfalls and |
| experience is having all the information requested | | | | surprises of the 'bad audit' experience! |