Received an Insurance Audit Notice? Here's What to Expect.

Don't panic if you receive an insurance audit notice.

Insurance audits are a routine part of many business insurance policies, and receiving one doesn't necessarily mean something is wrong. In most cases, the insurance company is simply verifying information used to calculate your premium and ensure your coverage accurately reflects your business operations.

Understanding the process can help reduce stress and avoid surprises.

Certain types of insurance policies are issued using estimated figures at the beginning of the policy term. At the end of the policy period, the carrier performs an audit to compare those estimates to actual business activity.

An audit may be used to review:

• Payroll
• Gross sales or revenue
• Subcontractor costs
• Number of employees
• Operational changes during the policy period

The goal is to ensure the premium charged reflects the actual exposure the insurance company insured throughout the year.

The specific documents required vary by policy and carrier, but commonly requested information includes:

• Payroll reports
• Quarterly tax filings
• Profit and loss statements
• General ledgers
• Sales reports
• Certificates of insurance for subcontractors
• Federal tax returns

Providing complete and accurate documentation helps the audit process move more smoothly and reduces the risk of incorrect premium calculations.

Once the audit is completed, the carrier compares your actual business activity to the estimates used when the policy was issued.

One of three outcomes typically occurs:

1. Additional Premium Due: If your payroll, sales, or other rating factors were higher than originally estimated, you may owe additional premium.
2. Return Premium: If your business activity was lower than anticipated, you may receive money back in the form of a return premium.
3. No Significant Change: If your estimates closely matched your actual results, you may see little to no adjustment.

Audits can become more complicated when:

• Employee responsibilities changed during the policy period
• New business operations were added
• Subcontractor documentation is incomplete
• Payroll records are not organized by job duties or classification
• Financial records are difficult to access or reconcile

The more organized your documentation is, the easier it is to ensure an accurate outcome.

While every business is different, a few best practices can help:

• Keep payroll and financial records organized throughout the year.
• Maintain certificates of insurance for subcontractors.
• Track operational changes as they occur.
• Respond promptly to audit requests.
• Ask questions if you are unsure what information is being requested.

Being proactive can help prevent delays and reduce the likelihood of disputes during the audit process.

One of the biggest misconceptions about audits is that business owners have to navigate them themselves.

If you receive an audit notice, don't feel pressured to immediately respond before understanding what's being requested. We can help you review the request, gather the appropriate documentation, and work through questions before information is submitted.

At Van Wyk, we're happy to help clients understand the audit process, prepare documentation, and communicate with carriers when questions arise.

Questions before responding to an audit request? Reach out to the Van Wyk team first. We're here to help you understand what's being requested, avoid common pitfalls, and make the process as straightforward as possible.