The typical startup business purchases an insurance policy and may think payment is all that is left. Then when a 3rd party auditor sends an email that is ignored due to a misunderstanding – the policy cancels. Confusion hits when the cancellation notice reads “Failure to comply with audit.”
Unfortunately, we know this happens a lot. Remember that an insurance policy is really a fancy way of saying financial contract. Most financial obligation scenarios are auditable.
Difference between an Audit and an Inspection
Both inspections and audits may occur while the client is insured.
Inspections are scheduled and are performed onsite. Larger risks and more hazardous environments can expect inspections with more frequency.
Audits are requests sent to the client that are completed and delivered back to the insurance company or a 3rd party. Audits are numerical in nature which
What lines of Insurance are Audited?
With regards to commercial insurance or business insurance, you must be prepared to report for workers compensation each year. Other lines, such as general liability or liquor may incur audits at randomized intervals.
Commercial Auto or Business Auto is managed in the relationship between agent and client. Information for vehicles and drivers will be discussed and amended on an as needed basis with confirmation at renewal. Therefore, does not need an audit promulgated by the insurance company.
Likewise, the umbrella is not a particular candidate for audits, because it is based on the underlying coverage information which will be reviewed.
Cyber policies may experience audits to ensure that their IT controls not only exist, but are functioning as intended.
Remember that an audit for insurance is not necessarily a bad thing. Depending on the results, you may get a return. Think of the audit like a “true-up” of the exposure. It is much like your taxes, except no fancy plays for deductions.
Who Performs the Audit?
A third-party company will typically be responsible for conducting the audit. It is the responsibility of the client to respond and complete the requested information by the declared due date. Compliance and maintenance of coverage is dependent on the completion of the audit.
If you know of an upcoming audit, it is important to keep an eye on your email. There are many audit processing companies making it easy to miss.
Where to go with Questions about the Audit?
Each audit is assigned to an auditor. Thus, there will be a specific contact from the auditing company to address any concerns as they arise. If answers from the adjuster seem inadequate, you can also call your agent for assistance.
Staying Prepared:
Audits are performed on routine business information. Mostly sales and payroll. Having a payroll system that allows your to pull reports will make quick work of the inbound requests.
Also, many times businesses will solicit their accountant for assistance and/or completion. It is worth your time to see if that is part of their offered services.
Need Additional Clarity?
If you would like to receive some clarity on this topic and begin a conversation, don’t hesitate to give us a call at 704-665-5340
