In business insurance, a premium audit affirms a company’s risk probability. This process ensures that the premium charged reflects the business’s size and type of operations. This is an important process for the policyholders to grasp to avoid additional expenses and comply. LiteSpeed Insurance gives adequate and appropriate assistance and directs companies to go through the audits easily and efficiently. This article will delve into what a premium audit entails, the various forms of audits, and what businesses can expect during the process.
Understanding the Premium Audit
Definition and Purpose
A premium audit seeks to determine whether the computed premium corresponds to the level of risk. Insurance firms employ it to ensure that the premium paid throughout a similar period is proportional to the firm’s activities. The audit examines the payroll, sales, job classifications, and the costs of subcontractors, which all play a role in determining the premium. It benefits the insurance company and the policyholder by avoiding payments of lower or higher premiums than what should be due.
Who Conducts It and When?
Premium audits are normally carried out by insurance companies or by professional auditing firms in the field. They are often conducted at the end of the cycle, although audits can be conducted at a certain point in the middle of the year. For instance, if a company recruits new employees, alters its business model or hires fresh subcontractors, then an audit of the risk and price alteration might be required. The timing of the audit can vary, but it generally happens within 60 days after the policy expires.
Types of Premium Audits
Voluntary vs. Physical Audits
Voluntary audits are not compulsory and do not require physical access to the client’s premises. The policyholder sends the relevant documents through post, email, or online platform. These audits are often carried out with simple organizations and often with small business organizations. Physical audits occur when an auditor is physically present in the organization, reviewing the company’s records, asking employees questions, and assessing overall business operations. This type is more detailed and is usually used where the business is large or has many operations.
Phone Audits
Phone audits are another type of audit useful when the business cannot host a physical audit but requires more intense scrutiny than a voluntary audit offers. An auditor will discuss payroll, sales, and business activities with a representative. Although not as detailed as a physical audit, phone audits provide a moderate degree of verification.
Self-Audits
In an audit, the business owner or manager analyzes the data, which are then forwarded to the insurer. This is normally applied in businesses with stable and low-risk operations for their small businesses. Employers will be offered forms and the procedures that the insurer will expect to be followed in the audit process. Self-audits are also easy to implement, but herein lies a challenge of honesty and thoroughness on the business owner’s part.
What to Expect During a Premium Audit
Preparation: Documents Needed
Documents needed for a premium audit include original Payroll records, 941s or state unemployment tax returns, records of sales, contracts with subcontractors, etc. Other factors that should be considered include the proper job descriptions and classification of employees, where misclassification may cause improper adjustments in the premiums. Financial Statements will be the most important document for an audit. It is recommended that these documents should be prepared in advance to reduce the burden of the audit process and minimize mistakes that may occur. Here are the six basic sops:
- Payroll records: Information on your payroll is required to show that you are covered by workers’ compensation insurance.
- Tax forms: Tax documents like W-2, 1099, Form 941, and Form 944 can help verify payroll and sales records, and confirm your federal ID number.
- Certificates of insurance: If you have subcontractors, you should request a current certificate of insurance from them. This can help avoid additional premium charges.
- Financial statements: These should reflect your financial position, results of operations, and changes in net assets for the fiscal year being audited.
- Accounting ledger: This is one of the main items you’ll need for your audit.
- Detailed descriptions of business functions: These help the insurance company ensure their estimates match your actual payroll.
The Audit Process
The auditor will start by reviewing the impression the documents give to confirm the information. They may need further information or explanation parts in the data set if missing or contradictory information exists. The auditor may also move around the business facilities in the physical audit to gather more information. The actual audit may take a few days to several weeks, depending on the size and complexities of the business.
Common Misconceptions About Premium Audits
Myth: Premium Audits Are Only About Payroll
Most business people perceive that premium audits center on the payroll aspects, whereas they are broader. They evaluate every risk aspect of their sales, employees, and subcontractors. For instance, describing an employee who performs dangerous tasks as an office employee may result in low premium payments. Understanding these nuances helps businesses prepare better and avoid penalties.
Myth: Premium Audits Always Increase Premiums
The last stereotype we will discuss is that premium audits always lead to increased premiums. An audit might show that the estimated initial premium was high, so a refund or credit is issued to the policyholder. For instance, the audit would reduce the premium if a business expected higher sales or payroll than experienced. This helps avoid a situation where the businesses are charged exorbitant amounts of money for their insurance.
How LiteSpeed Insurance Supports You During Premium Audits
Pre-Audit Disputes
LiteSpeed Insurance partners with its clients to prepare various documents in case of an audit to ensure they are ready for an audit. The need to meet the required quota and avoid discrepancies and penalties makes the process less stressful when one takes a proactive approach. Contingency planning is a key benefit as it helps to minimize the time spent on claims and the chances of a policyholder and the insurer disagreeing.
Visit our subtracking website and fill the form to get a free subtracking template and the mini course for tutorial.
This is where we will review your prior insurance policy audits with our accounting team and analyze any potential errors that resulted in additional premiums. I would redirect them to a behind the scenes audit dispute where I found and disputed over 55k in additional premium penalties. Have them watch the video https://www.youtube.com/watch?v=9g3ZiqIBBU4&list=PLFSRYnsAXIsa1_3wVqtpBFxZ5XOcu3vzV&index=6
Consultation and Guidance
LiteSpeed Insurance provides client experience including user access and audit support where we will work with you to collect and store and manage your sub contractors insurance policies that are required for an audit. This ongoing process makes audits hassle free. where the firm gives an expert opinion throughout this audit process. They brief their clients on how it is possible to structure and develop information, how to answer the auditor and different questions that may be implemented in the audit. This support is crucial in ensuring that the business’s interests are well protected and served.
Post-Audit Review
Following the audit process, LiteSpeed Insurance reviews the results with the business owner to make corrections. Suppose some differences or differences arise. In that case, LiteSpeed Insurance can help in the appeal or provision of additional evidence or documents. This post-audit review also confirms that the final premium is legitimate and does not overcharge the business.
Benefits of a Premium Audit
Ensuring Fair Premiums
Premium audits help avoid cases of either overpaying or underpaying the business for the risk it portrays. In other words, the audits ensure that the premium is in tune with actual operations to achieve a proper balance in an insurance market. These accuracies benefit the insurer and the policyholder, making the insurance relationship more trusted and transparent.
Identifying Coverage Gaps
Premium audits can also bring out matters of concern, such as areas of exposure that the business may stand to cover financially. For instance, an audit may discover that a company has grown its business operations but has not altered its insurance policy correspondingly. Responding to these gaps early prevents coverage gaps in the business and attenuates potential risks.
Tips for a Smooth Premium Audit
Organize Your Records
Payroll and sales records should be clean and sorted, as well as information on subcontractors. When responding to the audit, it becomes easier to give the correct information due to this organization, hence eliminating mistakes or overlooks. Accounting software helps maintain this level of organization or hire a professional service provider, such as a bookkeeper.
Communicate With Your Auditor
Therefore, an organization’s decision-makers should be able to communicate effectively with their auditors. When there are changes in the business, it is required to disclose it and provide the necessary information as soon as possible. It would be best if you did not assume anything. You should seek clarification if you have doubts about any part of the audit. Effective communication is very useful in avoiding misunderstandings and allowing proper execution of the audit.
Conclusion
Premium audits are a vital component of business insurance and help to determine fair premiums based on a company’s risk profile. Whereas, if one prepares himself properly and comprehensively, audit work can be very easy and profitable. LiteSpeed Insurance provides crucial assistance before the audit process and after auditing services, guaranteeing companies’ preparedness and safeguarding during the audit.
About LiteSpeed Insurance
LiteSpeed Insurance is dedicated to offering business insurance solutions to its clients. In premium audits, we assist you in ensuring you do not fall short of the required standards of any law, regulation, or policy. Our team continuously ensures that an individual has the right insurance coverage without paying for unnecessary expenses. Catering to small business needs for insurance solutions, LiteSpeed Insurance is a trusted advisor for business insurance. Contact us today to find out how we can help your organization.
