Understanding and Preparing for a Premium Audit

You just received a phone call from someone who says they represent your insurance carrier and would like to set up an appointment to audit your business operations. You’ve paid all of your premiums on time, so you wonder what they could want?

Many commercial insurance policies are based on the “best information” that the insured can provide at the time the policy is issued. The purpose of the premium audit is to replace the “best information” used when the policy was written with “actual” business activity for the policy term.

In other words, insurance carriers request a premium audit when they want to ensure they understand your operations and, if necessary, adjust the premiums to accurately reflect them.

In this article, we break down premium audits even further, exploring why they’re an important part of the coverage process, when and how they occur, and what you can expect if you are involved in one.

What Is a Premium Audit?

A premium audit is a standard process that ensures your insurance premium accurately reflects your business’s actual operations over the policy term. Since many commercial policies—such as general liability, workers’ compensation, and commercial auto—are based on variable factors like payroll, sales, or the number of employees, initial premiums are often based on estimates. The audit reconciles these estimates with your actual figures.

Why Are Premium Audits Necessary?

Premium audits are essential because they:

• Ensure Fairness: They adjust your premium to match your actual exposure, ensuring you’re not overpaying or underpaying.
• Maintain Compliance: Accurate audits help maintain compliance with state regulations and insurance guidelines.
• Reflect Business Changes: They account for any changes in your business operations, such as hiring new employees or expanding services.

Learn More: How Often Should I Update My Insurance Policy?

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When and How Do Premium Audits Occur?

Premium audits typically occur shortly after the policy period ends—often within 30 to When and How Do Premium Audits Occur?

Premium audits typically take place within 30 to 90 days after your policy period ends. The format of the audit depends on the size and complexity of your business, and can range from a simple form to an in-person visit.

• Mail-in or Online Audit – Often used for smaller businesses, this option involves filling out a form with your actual payroll, sales, or other relevant figures. Some companies offer a secure online version for added convenience.
• Phone Audit – In some cases, an auditor may call you directly to walk through the necessary details.
• Physical Audit – For larger or more complex operations, the auditor may conduct an on-site review of your records. This typically takes one to two hours, depending on the nature of your business and whether any major changes occurred during the policy term.

No matter the method, your auditor will let you know what documents to have ready—streamlining the process and minimizing any disruptions to your day.

The size of your business may also impact the extent of your premium audit. For instance, for many small businesses, the entire audit may be as simple as confirming total payroll or sales for the year.

For larger risks, on the other hand, an auditor may prefer to visit your office and review your records with you. This may take an hour or two of your time, depending on the type of business and whether or not there have been any changes in your operations.

Remember: The auditor should let you know prior to your meeting exactly what information they will need to review. Having all requested information ready prior to the meeting will shorten the process.

What Information Should I Have Ready For My Premium Audit?

To complete this check-in, your auditor may ask you to provide any of the following:

• General Ledger: A complete record of your company’s financial transactions.
• Cash Disbursements: Records of all cash payments made by your business.
• Quarterly State and Federal Tax Returns: Including forms like 941s.
• Payroll Ledger: Detailed records of employee wages and hours worked.
• Certificates of Insurance for Subcontractors: Proof that your subcontractors have their own insurance coverage.

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What Happens After a Premium Audit?

Once your premium audit is complete, you’ll receive an overview of any updates to your policy or coverage. This might look like:

• Additional Premium Due: If your actual exposures were higher than estimated, you may owe more.
• Return Premium or Credit: If exposures were lower, you might receive a refund or credit.
• Policy Adjustment: The audit may impact future premiums or policy terms.

Pro Tip: Top insurance carriers like Central invest in digtal tools designed to make updating or reviewing changes to your policy easy. Learn more about our e-options here.

Tips for a Smooth Audit Process

According to Central’s experts, there are a few steps you can take before a premium audit to ensure a smooth and painless experience.

• Maintain Accurate Records: Keep detailed and organized records throughout the year.
• Classify Employees Correctly: Ensure job classifications are accurate, especially for workers’ compensation.
• Communicate Changes: Inform your agent about significant changes in operations or staffing.
• Respond Promptly: Timely responses to audit requests can prevent complications or penalties.

The Central Difference

At Central, we know that navigating a premium audit can feel overwhelming—but it doesn’t have to be. Our goal is to make the process as straightforward and transparent as possible, so you can focus on running your business. Whether you’re filling out a quick form or preparing for an on-site review, we’re here to help every step of the way.

By keeping accurate records and staying in touch with your independent agent, you can ensure your coverage reflects your actual operations—and avoid surprises at the end of your policy term.

Have questions about your upcoming audit or want to better understand how it affects your policy? Contact your independent Central agent today. We’re here to help you feel confident, informed, and protected.