What is a Premium Audit? What Business Owners Should Know
Every business needs insurance. Whether you are a sole proprietor or a small business owner, insurance protects both your personal and company assets from lawsuits that could put you out of business. However, once they secure their policies, many businesses rarely look for lower rates. Instead, they often choose to renew their existing policies, even at a higher rate. According to the Ivans Index, monthly premiums for business owner policies increased by an average of 5.62%. This underscores the importance of conducting a premium audit to ensure you are getting the best rates available.
What is a Premium Audit?
An insurance premium audit is a review of your business’s records to ensure that the premium you paid for the policy period accurately reflects your actual risk exposure.
Most commercial policies (like Workers’ Compensation or General Liability) are “auditable.” When you first buy the policy, your premium is based on an estimate of your business activity for the coming year—usually measured by payroll or gross sales. At the end of the policy term, the audit compares your actual numbers to the policy terms. If your business grew more than expected, you may owe an additional premium. On the other hand, your company might be entitled to a refund or credit if payroll or sales were lower than expected.
Are Insurance Audits Required in Florida?
Florida requires mandatory premium audits for certain types of insurance coverage:
Workers’ Compensation
Per Florida law, self-insured and insurance carriers must complete a premium audit on all workers’ compensation policies. Because Florida has strict regulations regarding Workers’ Comp, failing to comply with an audit can lead to large “non-compliance” surcharges or even policy cancellation.
General Liability
While not always mandated by state law in the same way as Workers’ Comp, almost all standard GL policies include an “Audit” provision in your policy. If your policy is based on sales or subcontractor costs, the carrier will require an audit to close out the year.
What Florida Business Owners Need to Know
When that premium audit letter from your insurance carrier arrives in the mail, it will outline the business information you need to collect. Florida business owners also need to know that there are specific “audit traps” to watch out for:
Subcontractors
If you hire subcontractors who do not have their own Workers’ Comp insurance, Florida law may require your insurance company to charge you for them as if they were your employees. Always collect Certificates of Insurance (COI) from every sub you hire.
Officer Exemptions
Many Florida business owners elect to be exempt from Workers’ Comp. Ensure your audit reflects these exemptions so you aren’t paying premiums on your own salary.
Incorrect Class Codes
This is a big one. Florida has specific “class codes” for different types of work. If your employees are misclassified into a higher-risk category (e.g., classifying a clerical worker as a roofer), you are literally throwing money away.
How to Prepare for an Insurance Premium Audit
We can’t stress enough that preparation is the difference between a smooth refund and a surprise bill. Don’t wait until the night before the deadline. We’ve prepared this handy checklist to help you prepare for your premium:
- Organize Your Records: Have your 941s (Employer’s Quarterly Federal Tax Return), UCT-6s (Florida Unemployment Tax Reports), and general ledger ready.
- Separate Payroll by Class Code: Don’t lump all employees into a single class code. If you have office staff and field technicians, their payroll should be clearly separated in your business records.
- Gather COIs: Have copies of Certificates of Insurance for all subcontractors used during the policy period.
- Highlight “Non-Premium” Pay: Make sure your auditor sees what shouldn’t be charged, such as overtime pay (which is usually audited at the straight-time rate) or certain fringe benefits.
Are You Overpaying for Commercial Insurance? Get a Premium Audit Today!
Commercial Insurance Specialists is a Trusted Choice independent agency that offers a variety of commercial coverage options from leading carriers, ensuring your company gets the best rates.
Don’t overpay for commercial insurance! Just give us a call or contact us online, and we will provide a complimentary premium audit. If your business is located in the Tampa Bay or Lakeland-Winter Haven metro areas, contact us today to see if your business qualifies for lower premiums!
