Business Insurance

Cost & Audit Control

By Sam Kenton, Leavitt Group

Insurance premiums are on the rise. In fact, according to Market Scout, premiums increased five percent for accounts renewing in the month of August 2012 and have been trending upward.  Now is the time to take inventory of your insurance program to make sure you are managing risk and taking appropriate cost control measures.  If managed properly, insurance can have a positive effect on your bottom line rather than being just an expensive line item.

Your annual insurance audit is one way you can effectively manage risk and keep costs under control.  Audits are a common process in the insurance industry.  They typically occur at the end of the calendar year and are conducted to verify different aspects of your business, such as job descriptions, number of employees, payroll, driver information, and annual sales.  These elements are all used to determine your insurance risk classification and ensure that you are being charged the right amount of premium for the risk your insurance company is insuring.  If you are paying too much or too little for your insurance, an audit will help determine this.  Clients may be assessed or refunded premium when warranted.

Monitoring your insurance program throughout the policy term can help avoid any surprises at the end of the year and ensure that you consistently have the correct coverage in place.  If your company is experiencing significant growth, be sure to review your newly-predicted payroll and revenues with your insurance consultant.  These new figures will be compared to those submitted at the beginning of your policy year. This will allow your agent to make the necessary adjustments to your policy in order to ensure you have an appropriate amount of coverage.  In addition, making the adjustment mid-way through the year will allow any increase in your premiums to be spread over several months, rather than being assessed in one large payment at the end of the term.

If you prefer to avoid an audit altogether, you may consider a non-auditable insurance program.  This type of insurance policy estimates your risk at the beginning of the policy period.  Even if you double in size over the year, the cost for your general liability and umbrella coverage will not increase.  This can be an especially effective way to manage your cost if you are expecting significant growth in your business during one particular year.  However, it is important to understand that the non-auditable portion of your program does not extend to property or equipment coverage – there will be a premium charge for any endorsements made to add property or equipment to your policy.

Make sure you understand which elements of your insurance policy are auditable and which are not.  I had a situation where a client had insurance coverage through two different carriers.  The primary carrier did not audit their portion of the policy since it was non-auditable; however, they had a separate policy from an excess coverage carrier who chose to perform an audit.  The client had experienced significant growth throughout the year, so this audit was warranted.  They ended up paying an increase in premium based on the growth their company had experienced on the excess policy.

Making sure your policy is accurate throughout the year will result in better cost management and appropriate levels of coverage, both results of which will benefit your company.

To learn more about auditable versus non-auditable insurance programs, and to determine what is right for your unique situation, contact your Leavitt Group insurance consultant. 

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