When a Commercial Insurance policy goes into effect, several factors constitute the premium that is paid to the carrier. For many policies, these factors change throughout the year and must be updated through an endorsement (adding a car, buying a new building, etc.).
There are some policies however, that may not realize the change in the coverage factors until after the policy has expired. These changes are discovered during the Policy Audit. The two most common coverage forms subject to audits are the General Liability and Workers Compensation policies. While Workers Compensation is always based upon payroll, General Liability can be based on payroll, sales, square footage, or any combination of these. As your business expands, it is important to be in touch with your agent. They will need to update the insurance carrier with the appropriate rating factors. This allows you to plan and pay for the increase in premium during the current policy term and not with an unexpected large audit bill during the following policy term.
A simple example would be a company that grows from $1,000,000 in payroll to $2,000,000 during the policy year. The first year’s premiums for General Liability and Workers Compensation would be based upon $1,000,000 in payroll – let’s call that premium amount $10,000. At renewal, your agent discovers that your exposure is now $2,000,000, so the renewal premium doubles to $20,000. Now you are faced with the audit from the prior year at the increased payroll, and you owe an additional $10,000 in 30 days! Your realized insurance expense has gone from $10,000 in year one to $30,000 in year two, simply because your agent did not proactively anticipate these changes during the prior policy term.
Although this is a very simplified example of what can happen, at Galt Insurance Group, we pledge to speak with our clients throughout the policy year to avoid these unpleasant surprises. Contact us today for a thorough review of your coverage: 239-254-0127.