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When you get a bill for an unexpected premium adjustment after an insurance audit, it can strain your business's budget. For Central New York business owners who've maintained consistent operations, these unplanned expenses can feel overwhelming, especially when they cover both past and current policy periods.
At the Horan insurance agency, we work with multiple carriers and aim to help explain how audits influence your insurance costs. As an independent agency serving Central New York, we share information about audit timing and requirements while exploring options that may help manage premium adjustments.
In this article, we'll explore how commercial insurance audits work, what triggers premium adjustments, and steps you might take to prepare for reviews of your business coverage.
How Insurance Carriers Use Audits to Track Your Business Changes
Insurance carriers review certain commercial policies at the end of each term through an audit process. These reviews, which may be conducted either directly by carriers or through audit firms, verify whether the information used for your initial policy still reflects your current business operations.
Your business evolves throughout the year. Sales volume shifts, payroll costs change, and services expand. These changes affect your coverage costs because they represent different levels of risk exposure for the carrier.
Which Commercial Policies Usually Need Annual Reviews
In Central New York, audits commonly occur with:
- Workers compensation insurance
- Business owners policies and commercial packages
- Short-term disability and paid family leave coverage in New York State
The audit approach varies significantly by carrier and industry. For example, some carriers, like Erie Insurance, base restaurant premiums on square footage and restaurant type, requiring fewer audits since these factors rarely change.
Other carriers audit restaurants annually, examining sales volumes and liquor-to-food sales ratios to determine appropriate rates.
By contrast, other industries face more consistent audit requirements. Construction companies and contractors, for instance, typically undergo yearly business policy audits because their revenue and project types can vary significantly, affecting their risk exposure levels.
What Documentation You Need During an Insurance Audit
Carriers may conduct audits in various ways, including:
- Recording reviews at your location
- Conducting phone discussions about operations
- Supplying self-audit forms for completion
- Examining financial statements
- Performing reviews of payroll records
Additional documentation requirements may vary by carrier and policy type.
How Premium Adjustments Work When Your Revenue Changes
Consider this scenario: Your initial policy used $120,000 in revenue, but the audit reveals $200,000. This change affects your premiums in two ways:
- You'll see an adjustment charge for the previous term
- Your current policy premium will increase to match your new revenue level
Most audits occur 6-7 weeks after policy expiration. By then, you've likely paid one or two months of your renewed premium. This timing means you might face both past-term adjustments and current premium increases at once.
If your initial $2,000 premium should have been $2,500 based on actual revenue, you may see a $500 adjustment plus increases in your current policy payments.
How Business Changes During Audits Can Affect Your Coverage
Audits sometimes reveal issues beyond premium calculations. Consider a hair salon that adds aesthetic services during the policy period. During the audit, this new service might raise concerns if the current carrier doesn't cover aesthetician exposures. Such changes can lead to:
- Coverage questions for new services
- Potential non-renewal notices
- Need for policy modifications
- Limited time to find alternative coverage
When Audits Can Work in Your Favor
While many business owners worry about premium increases, audits can sometimes result in savings. If your revenue or payroll decreases during the policy period, an audit might reveal that you've overpaid. In these cases:
- You may receive a credit for overpaid premiums
- Your current policy premium might decrease
- Credits could apply to both the audited term and current policy period
For example, if you paid premiums based on $200,000 in revenue but actually earned $165,000, you might receive a $350 credit plus adjustments to your current premium.
How to Prepare Your Business for Insurance Audits and Control Costs
Consider these steps to help manage audit impacts:
- Keep your insurance agent informed about significant business changes, whether increases or decreases
- Ask about mid-term premium adjustments to help avoid large audit bills
- Inquire about payment plans if you have good payment history
- Maintain accurate records of revenue and payroll changes
Failing to participate in required audits may put your coverage at risk. Carriers can cancel policies for non-compliance, and delays often increase premium adjustments.
Take Control of Your Commercial Insurance Audit Process
Unexpected audit bills can create serious challenges for your business planning and cash flow. Without preparation, you might face substantial premium adjustments that affect both your past and current policy periods.
Working with an independent insurance agency may provide access to guidance about audit requirements and premium adjustments.
We maintain relationships with multiple carriers and can share insights about how different companies typically handle their audit processes. This knowledge may help you better prepare for reviews and understand potential premium impacts.
A proactive approach to insurance audits might help reduce surprises and offer more control over your insurance costs. Support during the audit process can allow you to focus more attention on running your business.
Click the Get a Quote button below to learn about commercial insurance options from an agency familiar with both industry standards and local Central New York considerations.
Now find out if Horan is the right insurance agency for you.
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