Inside an Auditable Insurance Policy

workers' compensation

An auditable insurance policy is one in which the premiums the insured pays are based on payroll and/or sales projections at the start of the policy term and then adjusted based on actual figures at the end of the term. Auditable policies are typically used with Workers’ Compensation and Commercial General Liability insurance, but can apply to Motor Truck Cargo and Auto Liability as well.

How an Auditable Policy Works

  • When a business purchases an auditable insurance policy, the insurance company bases the premium on the estimated sales revenue or payroll for the period.
  • The premium is divided by the payroll or sales revenue and a rate (percentage) is computed which becomes the figure  used for the audit calculation at the end of the policy.
  • The estimated premium is paid by the policyholder as with any usual policy.
  • The insurance company will perform a premium audit at the end of the policy to determine the actual exposure that occurred during the policy period. The auditor will review payroll data, time sheets, financial statements, employee classifications, sales records, and other relevant information.
  • Based on the audit findings, the insurance company calculates the actual premium that should have been charged, based upon the initial quoted rate, for the policy period. If the actual exposure is higher than initially estimated, the insured will need to pay additional premium. Conversely, if the actual exposure is lower, the policyholder may receive a refund or credit. One should inquire with their agent if a refund is applicable or not on the policy being provided, as not all policies are eligible for refund.

Auditable insurance policies provide a way for businesses to obtain coverage while taking into account the changing nature of their operations or exposure over time. These policies are particularly common in industries where factors like payroll, sales, and operations can fluctuate significantly.

It’s important for businesses to keep accurate records and cooperate with the audit process to ensure that the final premium adjustment is accurate.  If, upon the receipt of the audit the policyholder disagrees with the findings, they are offered the opportunity to dispute those findings and sort out any errors or mis-calculations that may have occurred.

About Western Truck Insurance Services

Western Truck Insurance Services is an insurance brokerage specializing in commercial truck insurance, including Commercial General Liability and Workers’ Compensation. We know this stuff and want to make sure you do too. Our clients appreciate our dedication to finding competitive rates and offering unparalleled service beyond excellent insurance options. They also value how our state-of-the-art automation provides lightning-fast truck insurance quotes, customer service, insurance certificates, and coverage changes. Contact us today at (800) 937-8785 to learn more.