The Cringe Word in Insurance
AUDITS, whether you love them or hate them, most would say the word audit has a negative feel and can bring on potential panic.
The vast majority of P&C carriers request audits for their policies, and it is a pick-and-choose situation as they are not completed on every single policy written. More established companies with consistent financials are less likely to be audited than a new company with premiums and coverage based on projected financials. Bloss & Dillard only gets involved when the carrier has been unsuccessful in contacting the insured. The carriers have full control over what policies are audited. An insurance audit is most frequently initiated through an official letter notifying the insured of the payor’s intent to conduct an audit. This notification will often include a records request which will allow the carrier to review a sample of the insured’s records to determine if the class codes on the policy need to be adjusted.
Though audits may seem to the insured that they are being picked on, this is not the case.
An insurance premium audit looks back at the insured’s financial records to determine their actual exposure to the risk. Typically, the insurance company will perform an audit at the end of every policy period, as well as when an insured cancels their policy. A policy is subject to audit even if it is canceled or non-renewed as the audit is for the term when coverage was in force.
To advise the insured their policies are subject to audit at the time they bind coverage is a good way to make them aware of what can happen. They need not panic as the audit does not mean there will be any changes to your policy or an additional premium owed, it is only a checkup to ensure the premium basis you paid for your previous policy period matches the exposure.
Compliance with the audit is a must and there are a couple of things the insured can do to reduce any potential stress. We recommend that the insured or their accounting firm have the documentation up to date, ahead of time, and instead of waiting for the second or third request, they can get this completed when the first request is sent.
We are here to help with any questions you may have and remember, not all audits result in a premium increase. Audits can be done in several ways: by telephone, mail, electronically or in person. Please make sure you know the caller is a legit auditor before releasing any audit information regarding your company. Give us a call, we can easily find out if the audit company is the one your insured’s carrier is using.
Remember when you get notified of an audit, just breathe, it does not have to bring on added stress.
