How Do Insurance Policy Audits Work?

DISCLAIMER:
The information/items listed below are general guidelines and not specific to any certain insurance company. Each insurance company has their own specific guidelines and information they will ask for. If you are being audited and have questions regarding your audit, please contact us at 844-402-4464.

The insurance company is auditing you, NOT Quote Texas Insurance (we are your agent).

Remember, we work for YOU, NOT the insurance company. We are here to help you navigate your insurance audit by answering any questions you may have and assisting you in communicating with the insurance company to reconcile your audit.

  1. 30 days before or after policy expiration - A good rule of thumb is the insurance company will normally order an audit about a month before or after your policy expires.
  2. Or, after policy cancellation – If your policy cancels, Insurance companies will do an at that time instead of when the policy would normally renew.
  1. Basically, it comes down to ESTIMATED numbers vs ACTUAL numbers.
  2. Your policy price is based off your ESTIMATED labor costs and/or gross sales over the next year and is subject to audit and verification of your ACTUAL numbers once the policy period is over. This is an industry standard practice.
  3. After your policy period is over, the insurance company will need to verify what your ACTUAL labor costs and/or gross sales were for that policy period.
  4. This means they will perform an audit/verification to determine your ACTUAL labor costs and/or gross sales.
  1. The insurance company will ask to examine your tax, payroll, and any other related records.
  2. They will then compare your ACTUAL labor costs and/or gross sales against your ESTIMATED labor costs and/or gross sales.
  3. If your ACTUAL labor costs and/or gross sales are higher than your ESTIMATED labor costs and/or gross sales, you will be billed for the difference.

This varies by the insurance company, but most companies give a 7-14 day window to complete your audit. In some cases this time period can be extended.

Yes, if you feel your audit is based on inaccurate information you can dispute your audit and provide corrected information.

Again, each insurance company is slightly different but normally what we see happen is,

  1. Your policy would be up-charged for a non-compliant audit.
  2. Your policy could be non-renewed.
  3. Your policy could be cancelled.
  1. The insurance company will send your invoice/bill to collections.
  2. Your policy could be non-renewed.
  3. Your policy could be cancelled.

Audit payments are normally due and payable immediately as they are for your prior policy term.

In most cases we see insurance companies asking for full payment but sometimes they will offer a payment plan for exceptional situations.

Most likely yes, but it depends on the insurance company. In most cases (depending on the insurance company)

  1. Your current policy term will be endorsed/adjusted based on the audit to reflect your accurate gross receipts/payroll, etc.
  2. This helps avoid future audit problems where you end up owing a large amount because your estimated numbers being grossly inaccurate.
  3. It is also beneficial as it allows you to spread out the payments over your remaining policy term.
  1. Make sure your projected labor costs and/or gross sales are updated every 6 months on your policy.
  2. If your gross sales & labor cost increases, you can spread any new insurance premium cost out over your remaining policy payments rather than paying it lump sum at audit.
  3. Save ALL certificates from any subcontractors. If you have these certificates you will either not be charged at all or only very little for sub costs.
  4. If you do NOT have proof that your subcontractors had insurance, they will be rated as employee labor.
  1. Because your policy provides coverage for work done by anyone you hire as labor, you will be charged based on the labor cost of those workers.
  2. UN-insured subcontractors/1099 workers:

    1. If you hire un-insured subcontractors/1099 labor that cost would be used by the insurance company as part of calculating your overall labor costs. (W-2 + subs/1099, etc)
  3. INSURED subcontractors:

    1. If you hire any INSURED subcontractors, they will either not be counted or counted at an extremely discounted rate.
    2. For INSURED subcontractors it is your responsibility to verify that they have
      1. their own insurance AND to
      2. keep proof on file for when you get audited
      3. You collect and retain certificates of insurance from each insured subcontractor, and
      4. that they must carry equal or higher limits of coverage as listed on your policy
    3. If you do NOT have proof on file, the insurance company will count these subs as UN-insured labor and will charge you for covering them.