What is an Audit?

General Liability

As noted under the section How is the Cost (Premium) Derived, the policy premium is based off of a projection for your upcoming policy period year. For example if your policy starts on April 1, 2018 and expires on April 1, 2019, you need to project what your revenue will be for each of those revenue streams and the insurance company will charge you the correlated premium. At the end of the year, the insurance company will audit you by asking for financial information to verify the numbers. If you do better than expected, they will charge you the difference (extra revenue times by the appropriate rate). However, if you go under, they will not give you money back. Why is that? The higher your projected revenue is, the lower of a rate they will give you. As such, you can cheat the system by purposely overstating your revenue projection. For example, you can state you will be bringing in one million dollars in revenue over a year period (when in fact you know you will only be bringing in one hundred thousand), obtaining a lower rate, and then getting money back at audit. With all of that said, I do not see major rate fluctuations unless the revenue projections are extremely material. In estimating your revenue, just do you best and after the first year you will have a much clearer picture or projection going forward.

Workers Compensation

All workers compensation policies are auditable. Your insurance company will request financial information to verify the yearly gross wages actually paid to employees. If your payroll is higher than your projections, they will charge you the difference. However, unlike general liability, if your payroll is smaller than anticipated, they will give you money back as long as it does not cross a minimum policy premium.