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Why do I need an insurance audit?

Magnifying glass Well, the end of the year is upon us and something that often comes up with your business insurance at this time is your annual audit.

Ever wonder why you receive an audit from your insurance company? What are they looking for?

Well some of the main things they want to verify are:

  • Job descriptions
  • Payroll
  • Annual sales
  • Number of employees
  • Driver information

All of these things help determine your risk classification and ensure that the insurance company is charging you the correct amount of premium for the risk that they are insuring.

It is important that this information is reviewed and updated on an annual basis because if it is not you can face some issues.

The most obvious being that you could be paying too much or too little for your insurance. Your rates are determined by the information they receive through your audit. When the insurance company receives it, they will adjust your premium accordingly with the information you provide. This can result in an increase to your insurance or a decrease in your next year’s premium.

This can be shocking to a new business owner if they haven’t updated their new hires and their payroll with their insurance agent throughout the year.

Probably the most important aspect of having this information correct would be in the event of a loss. If your business is not correctly classified you are running the risk of being denied coverage or worse having your policy voided due to misrepresentation.

Insurance companies have different risk appetites. Should you have a loss and during the investigation, the insurance company determines that your business is not an industry they would normally insure, they could possibly deny coverage and/or cancel your policy. 

Now you might think that this doesn’t happen, however, it can and very easily happens without you even realizing it.

Businesses tend to evolve over time.

  • You may start a business and then add different components to it.
  • You may change your focus altogether while keeping the same name.
  • Or, you may simply change your insurance company.

When you do make these types of changes to your business it is important to keep your insurance company in the loop, so you don’t end up out of the loop should a claim occur.

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