In discussing General Liability (GL) insurance with a contractor, it’s important to go over the fundamentals such as what’s covered, how coverage is triggered, policy limits, any exclusions, etc. It’s also critical you discuss how the premium for the policy is determined and the audit process involved once the policy term ends.
An insurance audit is performed to verify and reconcile the financial and other information provided by the contractor on the original policy application with the final figures after the policy expires in order to determine premium accuracy. The information provided on the application usually includes gross receipts, gross payroll, number of employees, type of operation, percentage of new construction versus remodels, subcontracting costs and other data.
When Revenue Is Under-reported
Typically, the audit is performed a few months after the policy expiration date. “We send a letter requesting an audit form to be completed and submitted along with the contractor’s financials,” explains Cheyenne Inglis, AVP-Premium Audit & Collections, Zoom Professional Services.
“Along with the audit form, the insured can send anything from the company’s tax return to bank statements and Profit & Loss (P&L) statements so that we can verify the estimates provided on the application,” explains Cheyenne. “We compare the financials to the original application and if any of the exposures are not in sync, an additional premium may be charged to cover the risk appropriately.”
Let Clients Know They Can Adjust Estimates throughout the Year
Cheyenne recommends that brokers, when going over the audit process, advise their clients to contact them if they are exceeding the estimations initially reported on the application or have any other changes to information that was originally provided. “A broker can issue a policy endorsement and charge an additional premium to cover the additional exposure. This helps avoid any surprises during the audit.
Zoom Professional Services makes the audit process easy, providing various methods to submit client financial information including online. Payments can also be made online by either the broker on behalf of the insured or by the insured.