Product Liability Insurance Premium Audits – What You Need To Know

In all my years in the insurance business, there is nothing that seems to push a business owner of the edge more than the end of the year premium audit.

I am not completely sure, but I have a pretty good idea why business owners hate insurance premium audits so much. It has to do with a combination of feeling they are being taxed for their success, imposition on valuable time and privacy being invaded. 

But be warned, if you are a business owner reading this blog, not cooperating with an insurance auditor rarely works in your favor.

The first thing every business owner or officer should realize is, the auditor assigned to conduct the audit for the insurance carrier is typically paid by the job and not by the hour. So the longer you put off the auditor, the more likely the auditor will simply declare your account “uncollectible or uncooperative”. Once this happens, your frustion level is now guaranteed go up by about 1000% and the following four things are likely to happen:

1. If you are lucky and can convince the auditor to come back out to perform the audit, you may find an auditor with little patience and unwillingness to hash out the small details that could save you money.
2. The insurance company performing the audit may multiply your previously projected sales by two and send you a bill for the additional premium.
3. If you renewed your insurance with the same insurance carrier that tried to unsuccessfully audit your business, the insurance carrier may elect to cancel your existing insurance policy.
4. The insurance carrier will turn he the debt over to a collections agency.

If you are thinking – “I will just get my insurance from another insurance company”, be aware that most insurance carriers will not want to work with a business that has been non-renewed because of a year end audit. This is a ‘red flag” that you are a problem client and will likely have the same problems with them, since sales audits are standard operating procedure in the product liability industry.