Surviving Your Insurance Audit
By Anthony Bevilacqua
An insurance audit of a company’s payroll or sales at policy year end is a standard industry practice designed to capture the correct amount of premium dollars relative to the risk created by the amount of work preformed or business produced. If a business is properly advised about audit techniques and the strategy behind the employee classification system, the audit is a smooth and simple process. More often than not, it is an exercise in frustration and mis-information that leads to a serious disruption in the daily routine of business operations.
These are a few tips on how to manage your insurance audit more effectively, avoiding premium overcharges and payment disputes with your insurance company.
Seek guidance on the employee classification system. Your professional insurance agent or broker should be well versed in the mechanics of proper classification. Auditors rely upon the definitions and strategies described in the NJ Compensation Rating and Inspection Bureau manual. The manual is part of the Compensation Bureau’s website. You can access the same information as the auditor pertaining to overtime rules, interchange of labor rules, governing classification definition and other important points auditors are trained to understand in order to properly conduct their work.
If you use subcontractors in your operations, make certain you have current certificates of insurance showing that subcontractor carries workers compensation and business liability insurance for the period of time the subcontractor worked for you. Further, if you hire sole proprietors, partnerships or limited liability companies as subcontractors, make certain the owner, partners or members of the LLC are covered by the workers compensation policy they buy for their business. It is no longer true these individuals cannot buy coverage for themselves.
Make certain a senior management person is present when the audit is conducted. Too many times employee mis-classifications occur, because the auditor’s contact that day is not a person fully versed in the role each employee has in the company.
Review the audit with the auditor before they leave your premises. Comment about potential mis-classifications and raise classification objections so that the information becomes part of the auditor’s permanent record and before the insurance company produces the final audit bill.
Obtain a complete copy of the auditor’s worksheets. The policyholder has an absolute right to view this information. An auditor cannot deny providing it. Review the worksheet with your insurance agent or broker. The entire outline of the final classification strategy is contained within. Use it to raise potential problems before the insurance company produces the audit invoice.
When properly prepared and managed through to conclusion, the insurance audit process is a smooth and simple transaction. Don’t be one of the many businesses caught disputing premium charges as the result of mis-information.
Anthony Bevilacqua, CPCU is President of Anthony & Company, an independent insurance agency with special insurance and risk management services tailored to the needs of the commercial and residential development community. You can reach Mr. Bevilacqua at (908) 806-8844 or email him at email@example.com.