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Premium Audit

We receive questions everyday from policyholders and agents regarding premium audit. Below are a few of the most common questions we hear and some brief answers to get you started in the right direction.


What is a premium audit?

Many business insurance policies have an adjustable premium basis.  This means that you and your agent will provide an estimate of your payroll and/or sales at the beginning of the policy term.  The insurance company will take this estimate and calculate your initial premium.  At the end of the policy term, an audit is conducted to reconcile what the actual premium should have been based on your financial results.

Why am I being audited?

If your question is “Did I do something wrong that initiated the audit?”, the answer is “NO”. Insurance companies and their audit companies don’t operate like the IRS. Some policies are audited every year, while others are audited intermittently. The audit is not about the carrier looking for more money – it is to make sure the correct premium is charged.

Could I get money back?

In some cases an audit will result in a policyholder receiving a refund for part of their advanced premium. Bear in mind, this is based on the coverage and the terms of the policy. For various reasons, some policies have set minimum premiums.

How is the audit conducted?

In years past, most audits were conducted in person. An auditor would come to your office and look through financial records. Because of the advancement of technology, many audits can be conducted virtually. This means the auditor will let you know what the records he/she needs and, based on a phone interview or email interaction, complete the audit without having to meet with you in person.

Who provided us your contact info?

Contact information is provided to us by your insurance company. It is part of the information collected when you fill out your initial application for coverage.

Do I have to do the audit?

The standard adjustable premium policy has an “Audit Clause”. This part of the policy contract states that you understand your insurance company reserves the right to audit your books at any time for the purpose of premium computation. When you take out the policy, you are agreeing to these terms.

What if I decide not to allow the audit?

There are ramifications to declining to allow an audit. Your policy might face cancellation or non-renewal. The insurance company might also take additional legal action.

Who should I ask if I have questions about the audit or process?

Your agent should be able to help you understand why the audit is needed. The auditor can answer questions more directly related to the actual audit process.

Will I have to do this every year?

Maybe and maybe not. As noted above, it depends on a variety of factors. Ask your agent.

How long will the audit take?

Your primary time investment will be in collecting and providing financial information. The auditor will also need some information about your business operations. That could involve a few minutes on the phone or the exchange of a few emails, depending on your availability.

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