General Liability Audit Explained
A general liability audit is when an insurance provider compares what happened during a policy term against the estimate from when a business took out the policy.
General liability policies are based on different factors depending on the type of risk they cover. For example, restaurants and retail stores are usually based on sales, whereas contracting and service businesses are based on payroll.
The insurance company has the right to audit the policyholder whenever they see a discrepancy between the predictions and the actual happenings. If the estimated cost was less than the actual cost, then the policy’s premium will go up for both the current term and the audited term. Insurance companies will charge policyholders for the difference between the real and estimated costs.
What’s Needed for A General Liability Audit?
It’s best to have financial data and records relating to that data on hand. This data includes sales numbers, payroll figures, and the proof of insurance for subcontractors. In the lattermost case, it’s important to have that proof, because otherwise insurance companies will count those subcontractors as employees for the sake of policy.
It’s also important that someone familiar with the day-to-day operations of the business should be involved in the audit. This lessens the risk of something being marked down in the wrong place, which could inflate costs and increase premiums.
Disputing the Audit & Non-Auditable Policies
If the policyholder does everything perfectly and turns in all the correct information, but the audit still shows something wildly different from what they marked down, they can dispute the audit. This is a manner of reviewing the audit to check for wrong numbers, things listed in the wrong category.
Tips for Audit Preparation
To better prepare for an audit, here’s some tips to follow:
- Remember when the audit’s due. Many companies specify ahead of time how often and when they’ll perform an audit—whether every year, every other year, or every four years.
- Estimate carefully. Be close, but don’t overestimate; most companies don’t return excess payments.
- Demand subcontractors show proof before work begins. This will ensure you have the proof on-file in case of an audit.
- Talk to your trusted insurance advisor about exactly what the audit process for the carrier they’re providing the quote with.
If you don’t have a trusted insurance advisor, or you’re looking for a second opinion, feel free to reach out to D&A Insurance.