Insurance Cost: Understanding Premium Audits

There is a process involved in determining insurance cost. There is also a process after a policy period expires to ensure that the policy premium was accurate – this is a premium audit, which is designed to guarantee that business owners only pay the premium they truly owe rather than a premium based on the estimated figures provided when their insurance policy was issued. The following information will help to explain the importance of the premium audit process.

Premium Audit Process

Think back to the workers compensation policy example. After the policy period expires, premium auditors review the business’ books to determine the actual payroll for that period. (You will recall that the exposure base for workers compensation policy premium is payroll.) Businesses that had a good year – higher actual payroll than estimated payroll – receive a bill for additional premium; those with lower actual payroll receive a refund.

Premium audits are also conducted on general liability policies, garage liability policies and liquor liability policies. The exposure base for these policies may be sales, payroll, subcontractor costs, gallons, or other measures of fluctuating exposure bases.

Small businesses complete an online audit form which is reviewed by internal audit staff and classification codes are assigned to the provided exposures.

Larger audits are conducted by field premium auditors who go to the business location to review the books and operations in person.

Why are Premium Audits Important?

Premium audits can provide valuable information about your business operations. In addition to determining the correct premium for a policy, Society’s experienced premium auditors also:

  • Verify that correct classification codes are assigned to claims
  • Collect ratemaking data to assist with determining future insurance pricing
  • Obtain additional underwriting information to evaluate risk and exposures
  • Help deter and detect fraud by reporting suspicious items

Finally, field audits provide an opportunity to establish mutually beneficial relationships with policyholders. Good impressions and friendly rapport go a long way. Premium audits allow business owners the opportunity to ask questions and develop a better understanding for insurance premium calculations.

Click here to learn more about Premium Audit.

The audit process is designed as a service that guarantees you only pay the insurance premium that you owe. Get in touch with your local independent agent for answers to all your Society audit questions.

Author

As a mutual insurance company, we operate and exist for the benefit of our policyholders. For more than 100 years, Society has been helping businesses overcome the unexpected with comprehensive coverage packages and outstanding claims handling, underwriting and risk management.

Latest Articles

Resolving Conflict in the Workplace Amicably

On average, 85% of employees will experience conflict in the workplace (Essential Workplace...

The Benefits of Active Listening in the Workplace

When people on a team struggle to listen to each other,...

Can You Use FMLA for Mental Health?

The Family and Medical Leave Act (FMLA) guarantees qualified workers the right to unpaid leave for...

Why Remote Teams Need Inclusive Workplace Practices

For most businesses, remote work is now a way of life in some capacity. Advances in technology and...

How to Motivate Employees as a Manager During Uncertain Times

As a manager in the restaurant industry, it can be challenging to motivate your employees during...

3 Reasons Why Authenticity in the Workplace Matters

Regardless of industry, a business is only as strong as its employees. Even the best products,...

Top Advice For Graduates Trying to Start a Career

As of 2020, there is an average of over 4 million students who have graduated from colleges in the...

7 TIPS TO HELP PREVENT PIPE BURSTING THIS WINTER

Originally published January 29, 2019, updated January 18, 2023. Many parts of the country are no...

A Guide to Safe Keg Handling

At one time or another, almost everyone who works in the restaurant and bar industry has been...

2022 Year in Review

Society Insurance is committed to providing blog posts to help business owners optimize daily...

Stay up to date with industry updates by subscribing to the Society Insurance blog!