Understanding thePremium Audit
Timely and Accurate Premium Audits
As a BITCO Insurance Companies policyholder, you will receive fair and equitable treatment from our staff of auditors and audit reviewers. We are committed to producing audits that represent your risk exposures accurately and reflect premium levels that are appropriate. Our premium audit process conforms to uniform industry standards and our people are highly trained.
The information available here is an overview of the BITCO Insurance Companies premium audit process including definitions of the physical audit and the voluntary audit.
Our "how to" section covers preparing for an audit and policyholders' frequently asked questions.
If you have an issue that needs further clarification, you may use the e-mail form below to ask a question or make a comment. We welcome your inquiries.
The Premium Audit Process
Your premium is determined by your exposures. Three common exposure types include: remuneration (commonly called "payroll"), gross sales and total cost of your subcontractors.
When your policy is written, your policy premium is based on your estimated exposure at the beginning of the policy year. Shortly after your policy expires, your actual exposure during the policy period is audited. The audit information is further verified by an audit reviewer who calculates the final premium for your policy. This final premium is reported to you on a statement of audit, shortly after the statement is prepared.
Types of Audits
The size of your policy and/or the nature of your business operations will determine if an audit is required, and if so, the type of audit that will be performed. Two types of audits are defined here:
This type of audit is performed at your place of business within 60 days of the expiration of your policy term. The auditor will notify you of the audit appointment by mail. This notification will list the insurance policies that will be audited and the records needed. It is important to immediately notify the auditor if you have questions about the records the auditor will examine or if you need to reschedule the appointment date.
Within 30 days of the expiration of your policy term, you may receive a voluntary audit form by mail. It should be completed and returned immediately. The form will list the classifications as shown on your policy and the type of exposure you should report for each classification. Questions can be directed to the toll free telephone number, fax number or e-mail address shown on the form itself.
When preparing for your audit, refer to this list of needed records:
- Federal and State Tax Reports
- Books of Original Entry (including source documents)
- General Ledger
- Cash Disbursement Journals
- Job Contracts
- Certificates of Insurance for Your Subcontractors
- A comprehensive description of your business operations. May include brochures or other promotional items describing your products/services.
- A detailed explanation of the job duties of each employee.
- Access to a responsible financial officer or representative during and after the audit.
- Helpful Tips
When preparing for your audit, refer to these helpful tips:
- If your audit is based on payroll, separate any overtime you paid to your employees. Summarize this overtime by classification. The auditor will deduct the "penalty" portion of your overtime from the gross remuneration. The "penalty" portion of overtime is 1/3 of "time and a half" overtime and 1/2 of "double" overtime.
- Make sure you have current certificates of insurance for each of the subcontractors that you used during the policy period. Also make sure that the certificate of insurance is for the same type of insurance coverage being audited. For example, if we will audit your Workers Compensation policy, be sure the certificate of insurance indicates Workers Compensation coverage.
- If you have any questions about the upcoming audit, please call the auditor or your agent before the audit appointment.
- If you have any questions during the audit, please ask the auditor. We are more than happy to answer any questions you have about the audit.
Q. Some of my employees perform more than one type of work. May I divided the payroll of these employees into more than one classification?
A. Only if manual rules permit the division of the payroll. To take advantage of this payroll division, you must do the following:
Maintain payroll records that disclose the actual payroll by classification for each such employee. Keep in mind that we cannot divide an employee's payroll between more than one classification by means of a ratio or percentage split of the payroll.
You cannot divide an employee's payroll between clerical work, outside sales work, automobile sale work or clerical telecommuter work and any other classification.
If you do not meet the qualifications listed above, we must place the entire payroll of the employee into the highest rated classification that describes any part of the employee's work.
Q. I used subcontractors during the policy period. Will you charge premium for my subcontractors?
A. The answer depends on the type of coverage we are auditing.
Most workers compensation laws hold you responsible for injuries to the employees of your uninsured subcontractors. However, if you provide proof of current workers compensation coverage for your subcontractors, we will not charge you workers compensation premium for the subcontractors' employees. If you do not have a certificate of workers compensation insurance for a subcontractor, we will include the payroll of the subcontractor's employees in the audit.
Generally speaking, you are responsible for injuries or damages to third parties caused by your uninsured subcontractors. Our audit will include the payroll of your subcontractors if you do not provide a current certificate of general liability insurance for them.
If your subcontractor has general liability insurance, you still may be held responsible for a portion of injuries or damages to third parties caused by your insured subcontractors. Therefore, we will make a small premium charge for your insured subcontractors. Keep in mind that this premium charge is much lower than the premium charge for an uninsured contractor. It is to your advantage to require certificates of insurance from all of your subcontractors.
Q. What do you mean by the term "adequate limits"?
A. BITCO Insurance Companies define "adequate limits" under general liability insurance as limits of liability of at least $500,000.00 for each Occurrence, $500,000.00 for General Aggregate Limit and $500,000.00 for Products - Completed Operations Aggregate Limits. If the limits of liability on your general liability policy are lower than the limits just mentioned, we will accept as adequate limits policy limits that are at least equal to your policy limits.
Please Note: The "adequate limits" mentioned in the preceding paragraph pertain only to the general liability audit. Our underwriting department uses different criteria to evaluate the adequacy of your subcontractors' general liability insurance limits of liability. Please discuss your subcontracted exposures with your agent.
Q. The limits of liability shown on my subcontractor's certificate of general liability insurance do not meet your definition of "adequate limits." How will you charge the premium for this subcontractor?
A. We will include in the audit the payroll of any subcontractor whose general liability insurance does not meet the definition of "adequate limits."
Q. I do not agree with the audit statement you sent to me. How do I resolve my problem?
A. If you do not agree with the audit statement, we suggest that you write to your agent outlining your questions. If you feel the exposures used on your audit are incorrect, attach documentation to your letter that supports your position. The agent will contact us and request that we re-examine our audit statement in light of the new information you provided. You also may contact us directly with your questions or concerns.