“Our virtual/hybrid audit process has been adapted to offer a safer and more convenient experience.”
– Daniel Trociuk, Director of Premium Audit
Complete Your Audit Report »Premium Audit Overview
As market conditions change, so will your business operations.
Premium audits are a routine part of commercial insurance. They’re necessary because your policy premium was based on estimated amounts provided by your agent at the outset of the policy period. At the end of your policy period, a premium audit is conducted to determine if you paid the appropriate amount for your insurance coverage. We will determine the best method to conduct your final premium audit based on the size and complexity of your business, and applicable state regulations. For example, some states require us to conduct premium audits on all Workers’ Compensation policies.
Types of Premium Audits
Your insurance carrier determines the type of audit they will conduct. These include:
Audit
This is a premium audit completed remotely without an in-person meeting with the policyholder or the policyholder's audit representative. The date and time are scheduled in advance for the opening and exit interviews. The auditor conducts an in-depth review of original digital records relating to the premium audit which have been provided electronically to the auditor by the policyholder.
Audit
This is a premium audit in which the auditor obtains relevant audit information over the phone. It is completed remotely without an in-person meeting. Copies of supporting documentation may or may not be required from the policyholder for verification and are sometimes required in advance of the audit.
Audit
This is a premium audit conducted in-person at the policyholder’s workplace or at the location of the policyholder’s audit representative, such as an accountant, bookkeeper or agent. The date and time are scheduled in advance. The auditor will request that the records be provided electronically before the appointment. The auditor conducts an in-depth review of the original records relating to the premium and will review the findings in person.
Audit
This is a premium audit where an audit reporting form is mailed to the policyholder to complete and send back to the carrier. A mail audit may also be completed through online self-service portals provided by the carrier. The mail audit is completed remotely without an in-person meeting. Copies of supporting documentation may be required from the policyholder for verification.
Audit Processes
Virtual/Hybrid Audit Process
A virtual/hybrid audit is conducted in a similar manner to physical audits, except there will be no physical auditor at your location. You will still be asked to submit specific records and supporting information. Your auditor will provide you with a link to our secure portal, unique username, and password to our site where you can log in to upload the audit records. Your auditor will then complete the audit and review the results by phone or email, however you prefer.
Consequences of Not Cooperating with the Audit Process
Premium audits are a requirement listed a as a condition of insurance within the insurance contract (policy). How we conduct the audit varies by state.
When an auditor can’t complete the audit because of a lack of information or no information being provided, an estimated audit will be processed. Generally, this is based on the original estimated payroll information plus the possibility of an additional non-compliant surcharge percentage if the audit is determined to be a non-compliant audit. Plus, the policy may be referred to the Underwriting department for review and set up to non-renew or for a mid-term cancellation. If the risk is Experience Rated, a new Experience Modification will not be promulgated based on an estimated audit.
Premium Audit Process
At the end of each policy term, we will send you a notification that an audit needs to be conducted. You will then receive a letter from an auditor acting on behalf of your Utica National carrier letting you know what records are needed and providing instructions on how you can provide them. Additional information to help you prepare for your audit can be found by downloading our WC Audit Tips Guide or our GL/CPP Tips Guide.
Once you have provided the requested documentation, the auditor will reconcile it and produce an audit report which will be provided to you. You will then receive a Premium Audit Statement with the finalized premium calculation for the audited term. It will show a credit due to you or adjusted premium due to your Utica National carrier. While it is unusual to have the estimated premium reflect the final adjusted premium, it can happen, and then a “0” would be reflected.
Common Errors to Avoid When Completing Audits
- Inaccurate Payroll Dates. When you are gathering records, they must be based on check dates, the date on which employees are paid or pay day. All audits must be completed using two types of documents: a source document showing transactions or payments during your policy period and a verification document, such as tax forms used to verify the source documents. The source documents should match as closely to your policy period as possible.
- How can I figure out which dates to use when I run my payroll report?
All payroll reports should be generated based on check dates, which are the first pay day after your policy inception date and the last pay day before your policy expiration date. - What If I don’t have access to run customized payroll reports?
If you do not have the ability to run a customized payroll report, please reach out to your payroll department/provider to request a payroll report for your audit period. If you do not have a payroll department/provider, discuss this with your auditor.
- How can I figure out which dates to use when I run my payroll report?
- Failing to include deductions. Everything in the payroll is not necessarily subject to the workers’ compensation premium. Allowable exclusions vary among states, but several are universal in most jurisdictions, such as:
- Overtime (premium portion, or the half part of time and half)
- Double time (premium portion, or the double part of double time)
- Severance pay
- Forgetting to consider state differences. In addition to overtime, double time and severance pay exclusions, jurisdictions often have additional deductions. However, they are not the same in every state. A multi-state employer that assumes exclusions in one state apply to another may be mistaken. Check your state’s Basic Manual, ask your insurance broker or agent, or ask your premium auditor to direct you to the allowable deductions for a particular jurisdiction.
- Improperly classifying employees. Your business operation determines what your governing class will be, i.e., the classification code in which the bulk of your employees will fall. Employees such as clerical workers who incur little risk may fall into a different category, but only if they NEVER do other work. For example, if your employee is an administrative assistant, but once or twice a year is involved with inventory control on the manufacturing floor, they cannot be classified in the clerical class.
- Failing to ask questions. If you are not sure which classification applies to your company or you don’t know what paperwork is required to back up your deductions, ask. Resources are typically available through state insurance bureaus, National Council on Compensation Insurance (NCCI), or your broker or insurer.
Understanding Your Audit Results
Below are some common areas that Impact Audit Results
Sole Proprietor/Partner/Officers
The amount of your final premium can be impacted if officers are not correctly identified on the policy, not correctly excluded on the policy or inaccurate payroll information was provided for officers. Plus, most states have established payroll minimums and maximums for officers. If your officer payroll falls below the state minimum or above the state maximum, those set amounts will need to be used instead.
Casual Labor/Temporary Labor/Leased Employees
Payments to all casual labor/temporary labor/leased employees must be reported on final audit documents for the audit period.
OCIP/CCIP Jobs
If you have been enrolled in an Owner Controlled Insurance Program (OCIP)/Contractor Controlled Insurance Program (CCIP), we will need the payroll associated with these jobs segmented out from the rest of your payroll to exclude those amounts from the final premium calculation. Please separately show payroll for employees who performed work on the OCIP/CCIP-covered project and include gross wages and any allowable deductions. A Certification of Coverage from the OCIP/CCIP administrator must be provided showing the project name, owner or general contractor, OCIP/CCIP insurance carrier, policy number and effective dates for workers’ compensation coverage.
Use of Subcontractors/Independent Contractors
Certificates of workers’ compensation insurance and general liability insurance must be obtained for every subcontractor you hire during your policy period. These policies need to reflect coverage during your policy period. This helps assure that proper classification of job costs can be made. If they are not obtained, the subcontractor and their employees may be treated as your employees for premium calculations. In some cases, additional validation may be needed to identify independent contractor status.
Frequently Asked Questions (FAQs)
What is a Premium Audit?
At the end of your policy period, a premium audit is conducted to determine if you paid the appropriate amount for your insurance coverage.
What is a Virtual/Hybrid Audit?
A virtual/hybrid audit is conducted in a similar manner to physical audits, except there will be no physical auditor at your location. You will be asked to submit specific records and supporting information electronically. Your auditor will provide you with a link to our secure portal, unique username, and password to our site where you can log in to upload the audit records.
Why do I need to complete an audit?
Premium audits are a routine part of commercial insurance. They’re necessary because your policy premium was based on estimated amounts provided by your agent at the outset of the policy period. At the end of your policy period, a premium audit is conducted to determine if you paid the appropriate amount for your insurance coverage. We may need to adjust your premiums based on actual business outcomes, given changes that may have occurred in your business.
How can I figure out which dates to use when I run my payroll report?
What was the first pay day for your employees after your policy began?
What is the last pay day for my employees before your policy expires?
How do I know which payroll reports to provide?
Every payroll provider/software system has its own reporting so the types of reports available to you can vary. However, we have compiled a list of common payroll provider reports that can be used to complete your audit. If you cannot locate your payroll provider or do not have access to one of the reports listed. We recommend you contact your provider directly for assistance.
What if I don’t have access to run customized payroll reports?
If you use a third-party payroll service, you should be able to request customized payroll reports for your audit. If your payroll provider cannot provide you with a customized report, ask your auditor for further assistance as many states have specific documentation requirements.
How can I request a copy of my audit?
You can request a copy of your audit by sending an email. Include the policy number, term dates and “audit worksheet request” in the subject line.
What can I do if I do not agree with my audit?
If you do not agree with the results of your audit or have questions or concerns about it, you may contact your agent so that they can review the auditor’s worksheet with you. Your agent can request the audit worksheets by sending an email. Include the policy number, term dates and “audit worksheet request” in the subject line.
Do I have to complete an audit if I am participating in the RightPaySM pay-as-you-go program?
Yes. All insurance policies are subject to audit, including those participating in the RightPaySM pay-as-you-go premium audit billing program. Your Utica National Insurance Group Auditor will request information that your company has been reporting. Policyholders participating in this program may be asked to provide supporting documents such as quarterly federal tax returns, detailed payroll reports, subcontractor details and certificates of insurance.
Why is a third-party company contacting me to complete an audit?
Our Premium Audit department has established partnerships with a select group of reputable companies to complete audits. There are several factors considered during the audit assignment process to determine if an audit will be performed in-house or by one of our vendor partners. Our vendor partners adhere to similar standards for quality and data security, and will provide our policyholders with an excellent customer service experience.
How is my General Liability policy rated?
All premium calculations start with the class code and then factor in things such as location, revenues, and claims history. As your insurance company we rate risks, based on uniform industry classifications found in a common coding database governed by the Insurance Services Office’s (ISO) Commercial Lines Manual.
Depending on your business operations, your premium basis – sometimes called an exposure basis – is based on a value per $1,000 of gross sales, payroll, or another defined metric. Every business classification has its own premium basis determined once the classification code is established. For example, the premium basis in the manufacturing sector is based on gross sales, while the premium basis in contracting is based on payroll. Mercantile classifications might be based on the square footage of the business.
How can I find out what my premium basis is?
Unlike Workers' Compensation audits, general liability audits can be based on different premium bases. There are 20+ premium bases and, in some cases, more than one may be applicable. Below is a list of the most common premium basis for general liability audits.
Common Bases of Premium are:
- ADMISSIONS – A person, other than an employee of the named insured, admitted to an event conducted on the premises, regardless of entry type (e.g., paid admission, ticket, complimentary ticket or pass).
- AREA – The area is calculated by multiplying the product of the horizontal dimension of the outside of the outer building walls by the number of floors, including basements. (Length x Width x Number of Stories)
- EACH/UNITS – Each as a basis of premium refers to the total count of units.
- GROSS SALES – The total amount charged for all goods or products sold or distributed, operations performed, product rentals (not real property) and dues or fees.
- PAYROLL – The total amount of gross wages paid, prior to any deductions.
- TOTAL COST – This is the total amount paid to subcontractors who performed work on your behalf.
What types of records should I prepare for my General Liability audit?
The types of records you will be asked to provide are determined by the basis of premium applicable to your business operation. When it is time to complete your premium audit, a member of our audit staff or audit partners will contact you and provide a list of records. You can download a copy of our General Liability Audit Records Preparation Tips Guide to begin preparing for your audit. Please keep in mind that the auditor may need to request additional records based on your unique business operations.
This is a summary of coverage and services. The precise coverage is subject to the actual terms and conditions of the insurance policy. Not all coverages are available in all states.