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Don’t forget to ask me any question at the contractor insurance site

response to insurance premium audit billing report 

When policies are issued, the premium is often based on projections you provide for sales or payroll. Your insurance rates can vary based on this information, the audit determines what the correct premium should be based on your actual experience.

An auditor selected by the insurance company conducts the audit. They may be an employee of the insurance company, or an employee of an auditing firm, or even an independent contractor.

THERE ARE THREE TYPES OF PREMIUM AUDITS. Depending on the size of your premiums and your operations you may get one of the following:

Physical Audit — Conducted at your premises or at a secondary location such as your accountant’s office.
Phone Audit — An auditor contacts you over the phone to complete the audit. This type of audit is generally for small- to mid-sized accounts.
Mail Audit — A voluntary audit form with instructions is mailed to you. Mail audits are generally conducted for smaller accounts.

RECORDS AUDITORS MAY ASK TO SEE: Auditors are likely to ask for one or more of the following types of records:

Journals and Ledgers
Tax filings Individual
Pay Records
Time cards
Vehicle titles
Contracts with clients
Contracts with subcontractors
Records of Job Costs
P&L Statements
Balance Sheets

QUESTIONS AUDITORS MAY ASK The auditor will likely ask questions about your records or operations. They may be asking questions to determine if the correct classifications are being applied. If an auditor decides your operations are not correctly classified, it can have an unwelcome surprising result of a large audit billing. Make sure you understand your classifications, and how the boundaries of your particular classifications are defined.

An auditor may ask for a tour of your operations, if they feel it may be necessary to verify correct classifications are being used.

Be familiar with how credits can be applied to your audits.

Insurance classification and rating rules often allow credits to your audit, but your records must be maintained to provide the necessary information in detail and summary form.

When premiums are based on payroll, it is generally defined as Total Remuneration for services performed by an employee.

Remuneration in most states, means money or substitutes for money, and includes:

Bonuses
Commissions
Holiday Pay
Other Money Substitutes
Overtime Pay
Payments made to Profit Sharing Plans
Payments made to statutory benefit plans
The value of board and lodging
Tool Allowances
Wages

Understand the following concepts and definitions to help make sure you avoid overpaying from an audit.

OVERTIME
In most states, the amount attributable to overtime in excess of the regular time pay rate may be deducted. It must be clearly identified in your records. It must be shown separately by employee and in summary by class of work.

DIVISION OF PAYROLL
Division of an individual employee’s payroll to more than one classification is not allowed, except for construction or erection operations and/or certain executive officer classifications. For construction or erection operations, the payroll of an employee may be allocated to each type of work performed on daily time cards. If not, wall wages will be charged against the highest rated classification to which the employee is exposed.

SUB-CONTRACTORS
Avoid becoming responsible for injuries to employees of subcontractor, by obtaining certificates of insurance naming you additional insured. Also, include in your subcontract agreements hold harmless and indemnification agreements in your favor. Auditors look to see if you have adhered to the terms in your policy as respects to your subcontractors. Sometimes audits go bad when the certificates are not in place, or the auditor decides payments to subcontractors are really wages to employees.

AUTOMATED RECORDS
Set up your automated records to provide audiors what they need, and you will find your audits go smoothly, and save you lots of time in the future.

DOCUMENTS YOU MAY BE ASKED FOR AT AN AUDIT
Accounts payable journal and cash dispersements
A/R journal
All vehicle leases, including but not limited to, owner-operator leases
Annual income tax statements
Documents supporting entries in the journals and financial statements
Driver and vehicle logs
Expense journal
Income Statements
Monthly Individual earnings reports
Payroll records including the payroll journal
Quarterly 941’s
Registrations for owned vehicles
SUI’s (State Unemployment Reports - DE 6’s in California)
General and subsidiary sales ledgers
All underlying journals

When policies are issued, the premium is often based on projections you provide for sales or payroll. Your insurance rates can vary based on this information, the audit determines what the correct premium should be based on your actual experience.

An auditor selected by the insurance company conducts the audit. They may be an employee of the insurance company, or an employee of an auditing firm, or even an independent contractor.

THERE ARE THREE TYPES OF PREMIUM AUDITS. Depending on the size of your premiums and your operations you may get one of the following:

Physical Audit — Conducted at your premises or at a secondary location such as your accountant’s office.
Phone Audit — An auditor contacts you over the phone to complete the audit. This type of audit is generally for small- to mid-sized accounts.
Mail Audit — A voluntary audit form with instructions is mailed to you. Mail audits are generally conducted for smaller accounts.

RECORDS AUDITORS MAY ASK TO SEE: Auditors are likely to ask for one or more of the following types of records:

Journals and Ledgers
Tax filings Individual
Pay Records
Time cards
Vehicle titles
Contracts with clients
Contracts with subcontractors
Records of Job Costs
P&L Statements
Balance Sheets

QUESTIONS AUDITORS MAY ASK The auditor will likely ask questions about your records or operations. They may be asking questions to determine if the correct classifications are being applied. If an auditor decides your operations are not correctly classified, it can have an unwelcome surprising result of a large audit billing. Make sure you understand your classifications, and how the boundaries of your particular classifications are defined.

An auditor may ask for a tour of your operations, if they feel it may be necessary to verify correct classifications are being used.

Be familiar with how credits can be applied to your audits.

Insurance classification and rating rules often allow credits to your audit, but your records must be maintained to provide the necessary information in detail and summary form.

When premiums are based on payroll, it is generally defined as Total Remuneration for services performed by an employee.

Remuneration in most states, means money or substitutes for money, and includes:

Bonuses
Commissions
Holiday Pay
Other Money Substitutes
Overtime Pay
Payments made to Profit Sharing Plans
Payments made to statutory benefit plans
The value of board and lodging
Tool Allowances
Wages

Understand the following concepts and definitions to help make sure you avoid overpaying from an audit.

OVERTIME
In most states, the amount attributable to overtime in excess of the regular time pay rate may be deducted. It must be clearly identified in your records. It must be shown separately by employee and in summary by class of work.

DIVISION OF PAYROLL
Division of an individual employee’s payroll to more than one classification is not allowed, except for construction or erection operations and/or certain executive officer classifications. For construction or erection operations, the payroll of an employee may be allocated to each type of work performed on daily time cards. If not, wall wages will be charged against the highest rated classification to which the employee is exposed.

SUB-CONTRACTORS
Avoid becoming responsible for injuries to employees of subcontractor, by obtaining certificates of insurance naming you additional insured. Also, include in your subcontract agreements hold harmless and indemnification agreements in your favor. Auditors look to see if you have adhered to the terms in your policy as respects to your subcontractors. Sometimes audits go bad when the certificates are not in place, or the auditor decides payments to subcontractors are really wages to employees.

AUTOMATED RECORDS
Set up your automated records to provide audiors what they need, and you will find your audits go smoothly, and save you lots of time in the future.

DOCUMENTS YOU MAY BE ASKED FOR AT AN AUDIT
Accounts payable journal and cash dispersements
A/R journal
All vehicle leases, including but not limited to, owner-operator leases
Annual income tax statements
Documents supporting entries in the journals and financial statements
Driver and vehicle logs
Expense journal
Income Statements
Monthly Individual earnings reports
Payroll records including the payroll journal
Quarterly 941’s
Registrations for owned vehicles
SUI’s (State Unemployment Reports - DE 6’s in California)
General and subsidiary sales ledgers
All underlying journals

This article is one of a series of tips to help business owners save large amounts of money on business insurance. Today, we are going to talk about loss runs, which are vitally important to any buyer of business insurance, who wants to save money. They are also known as policy history reports, but are more commonly called loss runs. This information applies to all forms of business insurance, including contractors general liability insurance.

What are loss runs? A loss run is simply a report from an insurance company showing claims you had for a particular policy. It should show the policy number, effective dates, and list for each claim a claim number, amount paid, amount reserved, amount incurred. It should show premium paid for the policy also.

Why are they important? Failure to obtain them at the right times is a primary cause for overpaying large sums of money. No one will accurately quote your business insurance without currently valued loss runs.

Why is getting loss runs often difficult? Brokers know their clients cannot get competitive quotations without them. To avoid unwelcome competition, they rarely give them to clients voluntarily. Brokers often try do delay handing over loss runs to clients, and use the time to capture as much control of your renewal as possible. To further complicate matters, brokers often cannot access loss runs for policies you purchased from other brokers. The critical job of capturing currently valued loss runs 90 days in advance of your renewal routinely gets mishandled. This ends up costing you money and creating unnecessary emergencies as your renewal approaches.

What is the solution? Collect and organize the information necessary to secure your loss runs. You absolutely need a spreadsheet listing all the policies you have now, and all those you’ve had in the past 5 years. The table headers (in a row across the top) are as follows, along with explanations after the dash:

Inception Date - what date did the policy start?
Expiration Date - what date did the policy end?
Insurance Company - Exact name of insurance company
Policy Number - every policy has a number. Record it accurately.
Premium - use the final audited premium if you have it.
Total claims paid - amounts actually paid by the insurance company
Total claims reserved - amounts not paid, but set aside in anticipation of being paid
Total claims incurred - the sum of paid and incurred.
Type of Coverage - Liability, Auto, Property, Excess Liab, Professional Liab, Workers Comp
Loss Run Contact - Name, phone, fax, email address of person who publishes the loss run.
Loss Run Valuation Date.- The date the loss run report says it is valued.

A good way to get this to happen is to ask your broker for it. If your broker cannot give you this, declare an emergency. This is absolutely vital information your broker needs to effectively run your renewals. Insist that your broker put this together and deliver it to you. It is best to do this long before your next expiration date.

You want the policy history rows sorted first by line of coverage, then by inception date. That way you will see 5 years for each line, in neat chronological order. For each line, you can sum the premiums and the claims to see how much money you are making the insurance companies. It is usually a lot.

Summary: Failure to get complete loss runs on time is a primary reason for overpaying for business insurance. No one can accurately quote your insurance without currently valued loss runs. This means you have to get them every year, 60 to 90 days in advance of your expiration dates. Keep organized as I am describing, and you will avoid the following expensive mistakes:

1) Letting your broker think he or she has a monopoly on your renewal. If you have your loss runs, that means you can get quotes from anybody. If you don’t have them, you can’t.

2) Having a last minute crisis, because of a missing loss run. This can result in a quote not happening that could have saved you a lot of money.

3) Getting ignored by underwriters, who view your applications for quotations as incomplete without the loss runs.

Get more information at Contractors General Liability Insurance Cost Reduction

For example, consider commercial liability insurance for general contractors. Buyers are isolated, and the insurance industry likes it that way. It is nice and complicated, and there are plenty of ways to spread fear, to keep contractors from doing much about it. Your job as a buyer is to stop asking questions, and pay the premiums. Isolated contractors try to ask intelligent questions, but they have no benchmark idea of what the best deals look like. They have very limited power.

I happen to know that rates are all over the map for contractors. General contractors focused on residential remodeling are a good example. I’ve seen premium rates range from 0.7% of sales to over 3%. As I collect more and more examples, I finally start to see into the murky marketplace. Turn on the lights, and it is easy to see what to demand.

Contractors are reluctant to show their insurance policies to their competitors for good reason. They don’t want to show their numbers for sales and payroll for one thing. Also, they are not all that confident they have to best deals, and don’t want to feel dumb. Every time I’ve seen contractors pull out their policies and compare them, there are always a good percentage wondering how the best deal on the table came to be that way. 80% of them discover they’ve been overpaying large sums of money.

What if every contractor in California where to regularly submit their results with the insurance industry into an ongoing survey, in exchange for access to the collective intelligence? We’ve been informally running such a survey for the past several years. If you’d be interested in participating, send me an email at my address below.

Don Bury is a nationally recognized expert on negotiating with commercial insurance brokers. He co-authored “The Buyers Guide To Business Insurance” in 1993, and operates Insurance Cost Reduction Services from his home in Arizona.

Contractors can get plenty of free information at Contractor Insurance Cost Reduction

Don Bury, President
Insurance Cost Reduction Services
3663 Camino Bella Rosa
Sierra Vista, AZ 85650
Phone/Fax: 800-760-1867
email: donbury@icrs.biz

web: Commercial Insurance Cost Reduction

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