I Owe More Insurance Premium?!

Contributing Author: Mark Rogina, CPCU

One of the most misunderstood topics I frequently field questions for is the insurance premium audit. Most business owners tend to not understand the reason for their premium audits and the process often appears to be convoluted at best.  Premium audit issues can be costly to businesses and certainly are unexpected surprises detrimental to cash flow.

There are two major insurance coverages that most business owners will have purchased that are usually auditable: general liability insurance and worker’s compensation insurance.

Each of the respective policies are priced based on class codes, or descriptions of what it is the business does or what their employees do for the business.  Multiple class codes can be used on one policy.  Each class code comes with a rate, and what is known as an “exposure basis”.  Depending on the type of business, an exposure basis is either payroll, revenue, building SQFT, number of units, etc.  In its simplest terms, the exposures basis is divided by 100 for a worker’s compensation policy or 1,000 for a general liability policy and then multiplied by the predetermined rate to develop an insurance premium.

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