New Business Owner's Guide To Understanding The Commercial Liability Audit

1 September 2016
 Categories: , Blog


As a new business owner, it's important that you invest in general liability insurance for your business. It's important to have this coverage to protect you from a variety of hazards and threats. In most cases, general liability policy premiums are based on estimated sales volume for the policy period. At the end of the period, an audit is conducted to evaluate the actual sales against the estimate. Here are a few things you should know about this coverage and the premiums.

How Do You Prepare For The Audit?

The better prepared you can be before the audit happens, the easier it will be to get through the process. At the end of the fiscal period for the policy term, pull a report that details all of your sales data, your payroll information, and any subcontractor payments. You'll also want to gather copies of insurance certificates for all of the subcontractors who work for your company.

What Can You Expect Of The Audit?

Have a designated area for the auditor to work. Whenever possible, have a conference room or office space where they can sit so that there's a door to close for privacy. Provide copies of all of the reports that detail your company's financial information, and make sure that all of the managers for each of the relevant departments are accessible. That way, if the auditor has a question about the transactions in a specific department, there's someone easily accessible to ask.

The auditor will conduct a risk assessment to ensure that you have insurance documentation for any subcontractors. Then, he or she will also review the actual sales figures for your fiscal year. Those actual figures will be compared against your estimates that were used to determine the initial premium. If your actual figures were lower than anticipated, it may result in a lower rate for your upcoming year, including an adjustment to account for the actual premium you should have paid.

If your actual sales were higher, you may have to pay an additional premium amount to make up the difference. You'll be given a date by which to make the payment, and you'll have to sign a waiver that says you didn't incur any losses or have any problems in the period affected. If you don't make that payment as required, your policy may be cancelled for non-payment.

It's also important to note that the audit is what sets your premium for the following year. Your premium will be estimated based on the actual performance of this current year. If you have any reason to believe that your performance next year will be materially different, this is the time to disclose that so that your estimate is as accurate as possible.

For more information, contact companies like North American Brokerage Inc.