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Arnouts Insurance Agency Blog

All You Ever Wanted to Know About Insurance

What is an Insurance Audit

When a General Liability, Garage Liability or Workers’ Compensation policy is put in force the premium is calculated based on estimated payroll/employees, gross sales, etc. The point of this is that some type of metric is being used to measure the exposure of risk. The greater the exposure of risk, the greater the premium should be and vice versa. Meaning if a company manufactured widgets and estimated their gross sales at $500,000 and the audit revealed only $450,000 in gross sales, they would get a premium returned from their insurance carrier. The opposite of this is also true, if the gross sales was 550,000 the company would have an additional premium due for the increased exposure.  Your income taxes are a similar parallel, you pay estimated taxes throughout the year and “square up” during tax season.

 Please note that other policies can be audited such as umbrella, property, dealer, blanket, commercial auto, etc. The point is that the audit is used to make sure appropriate premiums are being charged.


What records are most commonly needed for an audit?

  • -Payroll records
    • Payroll journal. 941’s, state unemployment reports, overtime reports.
  • -Employee records
    • Job descriptions, hours.
  • -Sales reports
    • Goods sold, services provided, sales/excise faxes.
  • -Check register/Cash Payments
    • Payments to subcontractors, material costs, payments for casual labor.
  • -Certificates of insurance
    • General liability and workers compensation certifications for sub-contractors used. It is produced to obtain certification prior to work being done. Need to make sure certifications are active when sub-contractors are doing the work.
  • -Income statements

While workers comp audits and general insurance audits can be time-consuming to produce for a business, they do serve a good purpose in making sure the risk of your business is being properly addressed.