Many commercial insurance policies — including General Liability, Workers Compensation, and some Commercial Auto policies — are subject to an annual premium audit. If you have never been through an audit before, the process can seem complicated. Understanding how it works will help you avoid surprises.
Why Policies Are Audited
General Liability and Workers Comp premiums are calculated at policy inception based on estimated exposures — projected revenue, payroll, or employee count. At the end of the policy year, the carrier audits the actual exposures to determine whether the estimated figures were accurate.
If actual exposures were higher than estimated, you owe additional premium. If actual exposures were lower, you receive a return premium.
The Audit Process
1. Audit Notification: Near the end of your policy year, the carrier will send an audit request — either a mail-in questionnaire, an online audit, or a notification that an auditor will contact you.
2. Documentation Review: Auditors typically request:
- Federal tax returns or financial statements
- Payroll records (by employee class code)
- Certificates of insurance from all subcontractors used during the year
- Job cost records or revenue breakdowns by coverage type
3. Classification Review: The auditor will verify that your employees and operations are assigned to the correct classification codes. Reclassifications — either up or down — can significantly affect the audit result.
Subcontractor Certificates of Insurance
This is one of the most common audit issues for contractors. If you used uninsured subcontractors during the policy year and cannot provide certificates of insurance for them, the carrier will typically add their payroll to your Workers Comp policy as if they were employees — often at a high-risk class code.
Collecting and maintaining certificates for ALL subcontractors before work begins is one of the most important administrative practices for any GC or general contractor.
How to Reduce Audit Exposure
- Keep clean payroll records by job classification throughout the year
- Collect and file certificates of insurance for every subcontractor
- Separate labor-only payroll from materials and equipment costs in your job records
- Communicate with your agent if your operations change significantly mid-year
Work With Capital & Co
Capital & Co can walk you through the audit process, help you organize the documentation needed, and review audit results for accuracy. If you receive an audit bill that seems too high, we can help you challenge it.
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