Policy Audit
We know the word “audit” can cause concern for business owners. biBerk is here to assist with the process.
What is a policy audit and who needs to complete one?
What is a policy audit and who needs to complete one?
An audit is a review of your business operations that determines if you paid the correct amount for your policy coverage. It is required for the completed coverage period and to renew your policy.
- Workers’ Compensation policyholders
State laws and regulations require an audit of Workers’ Compensation policies when the coverage period ends. - Professional Liability, General Liability, and Business Owners (BOP) policyholders
We may require an audit to validate the size of your business you indicated on your application.
When does an audit take place?
When does an audit take place?
Audits occur during or after your Workers' Compensation, Professional Liability, General Liability, or Business Owners Policy coverage period. We’ll email you with information on the process.
How will an audit affect your premium?
When your original Workers’ Compensation policy was written, the calculated premium (the amount you were charged) was based on estimated payroll, exposures, and employee classifications that must be verified after your coverage has expired (or upon cancellation). For a General Liability, Professional Liability, or a Business Owners Policy (BOP), the premium is based on your estimated revenue or payroll, and those figures must be confirmed. Notably, with a General Liability policy or BOP, only the liability premium is derived from those figures. Also, some policies are based on non-auditable exposures, such as the property limit of insurance. With any of these policies, your participation in a premium audit is required by your contract terms. The process is a means of reviewing your records and operations to determine the actual risk exposure and make any necessary adjustments to the premium charged.
For example: Let’s say you own a small coffee shop and are nearing the end of your Workers’ Compensation coverage period. When you started your policy, you estimated you would have $150,000 in payroll for the year. The premium you paid for the year was based on that figure. It turned out to be a slow year, and you only paid $120,000 over the policy period. The insurance company will actually refund a portion of your premium because you overpaid for your Workers’ Compensation insurance.
If, on the other hand, you had a higher payroll than expected, you could be required to pay the difference between your estimated and actual insurance premium.
We're here to assist with your policy audit.
Step One
Review and submit the information requested by biBerk.
Step Two
biBerk reviews your information and reaches out if more is needed.
Step Three
Based on the audit results, biBerk adjusts the policy premium as appropriate.
How to prepare for a Workers’ Compensation policy audit.
Preparing for an insurance coverage audit involves gathering the information that the auditor will need. Plan to provide the following:
Detailed business description
The type of work you do affects the Workers’ Compensation classification codes that are used for your business and the associated rates. More-hazardous work has higher rates, and less-hazardous work has lower rates. The auditor will need an in-depth understanding of your operations.
Payroll records
Documents like a payroll journal, individual earnings records, overtime payroll records, and a transaction report for amounts paid to independent contractors or subcontractors are needed.
IRS forms
You’ll need to submit quarterly IRS 941 forms showing wages paid. Subcontractor/independent contractor 1099-NEC forms for the most recent calendar year are also required.
Certificate of Insurance
You should be able to send the auditor any Certificates of Insurance provided to you by independent contractors or subcontractors you used during the policy period. If they had their own applicable insurance, we don't need to charge for their payroll. Be aware that it is crucial to provide the appropriate COI for the type of coverage (i.e., a Workers’ Compensation COI for a Workers’ Compensation audit. etc.).
Employee records
These should include detailed information on the duties of each employee, if available, and the number of hours worked annually.
Payments
Information on payments to independent contractors and subcontractors, casual labor payments, and the types of duties performed is needed.
How to prepare for a Professional Liability policy audit
You’ll need the following for a Professional Liability audit:
Recent annual IRS tax documents
This may include documents like 1065, 1120C, 1120S, or 1040 schedule C, depending on what your business filed.
How to prepare for a General Liability or Business Owners Policy (BOP) audit
For a General Liability or BOP audit, you should have the information below available based on the type of audit.
Sales-based audit
You can comply with a sales-based audit request by providing the following documents:
- Sales and Use Tax Filings Form ST-3 covering the most recent annual period available. For example, if you file quarterly, send us your last 4 quarterly filings.
If you do not file either of the above forms, we will accept:
- Schedule C of the Federal Income Tax Return for Sale proprietors
- Form 1065 for LLCs/Partnerships
- Form 1120 for Corporations
Please be prepared to provide your estimated gross revenue for the next 12 months. Depending on your business type, we might also need information on the percentage of your gross sales that comes from liquor or gasoline.
Payroll-based audit
You can comply with a payroll-based audit request by providing the following documents:
- State Unemployment Quarterly Forms for the previous four quarters (or Federal Quarterly Tax Returns - IRS Form 941 with payroll records run for each quarter).
If you do not file either of the above forms, we will accept:
- Schedule C of the Federal Income Tax Return for Sale proprietors o Form 1065 for LLCs/Partnerships o Form 1120 for Corporations
Please also provide the following information:
- Names of the owners (for LLCs, Partnerships, or Sole Proprietorships) or the officers (for corporations) of your company and their job duties.
- Names of all employees and subcontractors and their job duties.
- Employee payroll estimate for the next 12 months.
- Estimated amount paid to subcontractors for the next 12 months.
Frequently Asked Questions (FAQs) About Workers' Compensation Audits
Below are answers to questions we’re frequently asked about Workers’ Compensation audits. You can also reference our guide on a Workers’ Compensation Payroll Audit that provides an overview of the process.
If your policy requires an audit, we will email you during or after your coverage period has ended (depending on the type of policy) with information on the audit process, including the documents you must provide and steps you must take.
Audits occur during or following the end of your coverage period. An audit is required to ensure you pay the appropriate amount for the completed coverage period. It's also required to maintain coverage.
In order to complete your Workers’ Compensation audit, we’ll need you to submit the following documents:
IRS Form 941: Employer’s Quarterly Federal Tax Returns for the last four quarters
Subcontractor forms (all 1099s, 1096, and Certificate of Insurance for policy period)
If this document is not available, submit one of the following:
State Unemployment Quarterly Returns for the last four quarters
Schedule C of the Federal Income Tax Return for sole proprietors
Form 1065 for LLCs Partnerships
Form 1120 for Corporations
Failure to submit these documents by the requested date can result in an increase in your premium.
Yes, policy audits are mandatory in any situation where Workers' Compensation coverage has begun—even if coverage ends prematurely for any reason.
When your original policy was written, the calculated premium (the amount you were charged) was based on estimated payroll exposures and employee classifications that need to be verified after your coverage has expired (or upon cancellation). Your participation in a premium audit is required by the policy and state laws and/or regulations. The audit process is a means of reviewing your records and operations to determine the actual risk exposure and make any necessary adjustments to the amount of premium charged.
If you do not cooperate, we have no choice but to estimate your payrolls, which will result in a substantial increase of 100% or more of your original premium. For Workers’ Compensation policies, we also notify your state about your non-compliance. In addition, all types of policies are subject to cancellation for audit non-compliance.
The time it takes us to complete an audit varies depending on the nature of your business and coverage purchased. We encourage you to have your documents prepared prior to the end of your policy period for a quicker turnaround.
