Friday, March 29, 2024
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FAQs

Information about audits

An insurance policy is a contract between you and the insurance carrier. It's purpose is to transfer risk from you to the company.

When the contract is set up there are several factors which determine the cost. These typically are:
a.    The operations of the risk
b.    The total sales or gross receipts (which reflects the volume of activity)
c.    The total number of employees and the payroll amount (another way to measure volume)
d.    The amount of work subcontracted.

These factors, among others, are used to determine the acceptability of a specified risk. Different carriers use different numbers to determine the cost of the insurance. For example, one company may multiply the gross receipts by a rate to come up with a base premium. Another may multiply the payroll by a rate or even the number of full time or part time employees. Some companies include the subcontract costs and others charge a special rate for subcontract costs.  

Part of our job as your broker is to determine the best company for you based on the above criteria and other factors. For the most part the policies that are written are subject to audit.

When the audit is performed any difference in your actual numbers compared to the estimated numbers will be used to calculate the correct premium. Depending on the contract you will either receive a bill or a credit based on the new calculation which presumably would be based on actual figures as opposed to estimated figures. However, most insurance contracts are have a minimum and earned clause that says any audit will only be upward.

Insurance contracts are not based on an honor system. It's easy to understand why. Imagine a contractor estimating that he will build one house in the next year. Now what if he built 10 houses instead of one? The risk to the company is 10X but they would have collected for only 1X. They then feel, and rightly so, that they are owned more money for the amount of risk they have assumed.

This is why it is important when discussing your insurance needs with us that any estimates of gross receipts, payroll or subcosts be as accurate as possible as well as your actual operations. We work to get you the best value possible for your insurance dollar.

  


Venture Insurance Services
124 E Olive Ave. 
Burbank, CA 91502 
866-726-8442