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Construction Insurance Bulletin


By February 1, 2009No Comments

Premium audits are just as important for you as they are for your insurance carrier. That’s because when your policy was originally issued, your carrier calculated your premium based on the estimated payroll or sales figures you provided. Now that there are actual numbers, the audit determines what the correct premium should be based on your actual experience.

Your carrier can audit you using one of the following methods:

  • Physical Audit — This is typically conducted on-site or at another appropriate location, such as your accountant’s office.
  • Phone Audit — A representative of an independent audit company hired by your insurer contacts you by phone to conduct the audit.
  • Mail Audit — An audit form with instructions is mailed to you; the completed form is returned to your carrier.

Your insurer usually chooses the type of premium audit based on the size of your policy and/or the nature of your operations. The audit itself might include an inspection of accounting records including payroll journals, disbursements journals, general ledgers, Social Security reports, state unemployment forms or other tax reports. Since an audit can encompass such a vast array of data, you should follow these tips to help make the experience run smoothly:

Preparing for the Audit:

  • Decide which staff member is best able to work with the auditor. This should be someone familiar with the work done by all departments and employees and is knowledgeable about the records needed to complete the audit.
  • Review prior years’ audit billing statements and auditor’s work sheets to familiarize yourself with what the auditor will be reviewing.
  • Gather all pertinent accounting records.
  • Review payroll documents to make sure that they include breakdowns of wages by employee, department, and class code.
  • Verify that you have certificates of insurance on file for any subcontractors you might have used. Be sure that the documents show that the contractors have their own Workers Compensation and General Liability insurance.

On the Day of the Audit:

  • Request that the audit take place on site so that all pertinent records are easily accessible.
  • Ask questions during the audit to clarify anything you do not understand.
  • Ask for a hard copy of the auditor’s specific findings.

After the Audit Has Been Completed:

  • Review the audit billing statement carefully and compare to the original policy.
  • Make a list of all changes and discuss any questionable areas with the auditor before agreeing to pay any additional premiums.