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Premium Audit: Frequently Asked Questions


What is an insurance premium audit?

Which insurance policies are subject to a premium audit?

Why is an insurance audit necessary?

What information is needed to correctly calculate insurance premium?

What additional information is required of contractors?

How is the information obtained?

When will the audit occur?

What happens after the audit is completed?

Do I have to provide the information requested?

What happens after the auditor leaves?

What can I do to save money on my insurance premiums?

How are the owners classified in the audit?


What is a premium audit?


A premium audit is a means of obtaining information to determine the actual payrolls, sales or other variable information that is used to calculate the insurance premium.


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Which policies are subject to a premium audit?


Commercial insurance policies providing Workers' Compensation, Garage Liability, General Liability and Contractors Business owners coverage are generally subject to a premium audit.


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My company has one of the policy types you mentioned. Why is an insurance audit necessary?


When your policy was issued, your premium was based on your estimate of variable rating information, such as payroll or sales. An insurance audit is performed to determine what the actual premium should be based on your company's actual results.


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What information do you need to correctly calculate the premium?


Depending on the type of variable information used to rate your policy, we may request information that can be obtained from company accounting records such as bank statements, check books, payroll journals, sales journals, cash disbursement journals, general ledgers, financial records, social security reports and state unemployment tax returns, etc.


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What additional information is required of contractors?


You may be required to provide certificates of insurance for your subcontractors. Without proof of insurance, they could be considered your employee, resulting in increased premium charges.


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How do you obtain the information?


We attempt to obtain the information in a variety of ways:
1. Telephone
Our representative would contact your company by telephone and ask specific questions to obtain the necessary audit information.
2. Mail
A form would be sent to your company requesting the necessary audit information. You then complete the form in a timely fashion and return it to us for processing.
3. In Person
Our representative would visit your business (or your accountant) in person to thoroughly review your records and obtain all necessary audit information.


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When will the audit occur?


Audits occur shortly after your new policy term begins and the prior policy term concludes. Generally audits are done within 2 weeks to at most 60 days after policy expiration.


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What happens after the audit is completed?


The completed audit is normally sent to the carrier. The carrier will input the information into the computer system and adjust premiums based on the actual business activity for the past year.


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Do I have to provide the information requested?


Yes, it's one of the terms of your insurance contract and is a standard insurance industry practice. Rest assured the highest level of confidentiality will be observed in the process.


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What happens after the auditor leaves?


The results of the audit will be transmitted electronically by the auditor to the processing office. The processing office will then review the auditor's worksheets and prepare a Final Audit Statement. The Final Audit Statement will then be electronically transmitted to audit or underwriting department of the requesting carrier.


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What can I do to save money on my insurance premiums?


If you maintain detailed records, the audit process will be much smoother and work to your advantage. Credits are available on the audit for pay types such as premium overtime, tips, severance pay, and third-party sick pay; however, your records must provide a summary of these wage types by employee, department, and class code to allow the credit.

If you're a contractor, your policy will allow a split of an employee's wages between different types of jobs. Your records should indicate what type of jobs each employee completed during your policy term. With this breakdown, we can allow the use of more than one class code. Without this breakdown, manual rules state we must include all wages in the highest-rated class that applies to any portion of your work.


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How are the owners classified in the audit?


Owners, officers, partners, and members can elect or non-elect coverage under your Workers' Compensation policy. The rules vary by state and your agent will be able to provide specific guidelines in your state. You cannot non-elect coverage under your Liability policy.

If you're covered under the policy, your wages will be included at either a fixed amount or actual amount (subject to a minimum and maximum), depending on your entity type and policy.

Owners will be classified according to their actual duties. You will be asked to provide a description of each officer's duties.


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