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Premium audits can be a source of stress for businesses, especially if they are unprepared for the process. However, understanding what a premium audit is and how to prepare for one can make the experience much less daunting. In this article, we will provide an in-depth overview of premium audits, including what they are, which insurance policies commonly include them, the audit process, how to prepare for an audit, and what happens after the audit is completed.

What Is a Premium Audit?

A premium audit is a process conducted by either an insurance carrier or an independent auditing firm to calculate a business’s final premium. Since most original premiums are based on an estimate, a premium audit will examine records to reconcile a business’s estimated exposure with its actual exposure to verify that its premium accurately reflects its levels of risk. Premium audits may result in a change of premium or classifications for a business. It’s common for an insurance premium audit to be completed after an insurance policy expires or is canceled.

Which Policies Have Premium Audits?

Several types of commercial insurance policies may include premium audits. The most common policies that are subject to premium audits are:

  • General Liability: A general liability insurance policy uses annual gross sales to determine a premium. In addition, projected revenue over the next 12 months may also be factored in. Your revenue will be verified during the audit process, and your premium may be adjusted accordingly.
  • Workers’ Compensation: Workers’ compensation premiums are based on the number of employees you have, their classifications, and payroll data. Workers’ compensation audits may happen quarterly or monthly.
  • Liquor Liability: Liquor liability insurance premiums are typically based on gross sales, including alcohol gross sales, nonalcoholic beverage and food sales, and some operations information.
  • Other forms of commercial insurance, such as commercial auto, cargo and freight, and certain property policies, may also be subject to premium audits.

How Premium Audits Are Performed

For certain insurance policies, initial premiums are based on estimated costs that businesses submit for review to an agent or broker. At the beginning of a policy period, insurance carriers will review data to determine the premium for the full policy term. Within 90 days of the policy period expiration date, businesses will be asked to either fill out a self-reported audit worksheet—typically online—or complete a physical field audit. Some states and insurance companies may require some or all of the audit to be performed in person.

During the audit, businesses must provide supporting documentation to report on the previous year’s revenue and gross sales. Based on that information, premiums may be adjusted, and policies may be amended.

How to Prepare for a Premium Audit

Preparing for a premium audit can seem daunting, but with the right approach, it can be a smooth and successful process. The first step in preparing for a premium audit is to make sure your company’s records are organized and accurate. An auditor will likely need to review a variety of documents, including payroll records, overtime pay records, sales records, job duties and employee classification codes, description of company services, cash expenses, general company ledger, W-2 and 1099 forms for all employees and contractors, company federal tax return forms, and certificates of insurance for all subcontractors.

In addition to having accurate records, it’s important to be ready to discuss your recordkeeping procedures with the auditor. Since recordkeeping procedures can impact your premium, knowing how your business operates is important. You should also prepare any questions you have ahead of time to avoid any confusion regarding what is needed or expected from you during the audit.

Assigning a designated contact to work with the insurer or auditor can ensure communication and the overall process goes smoothly and efficiently. The primary contact should be familiar with the audit process and the entirety of your business. Reviewing the original policy can also help you understand how the initial policy premium was calculated.

It’s also important to analyze any publicly available information about your company. Industry databases, association listings, search engine results, and your website should all be analyzed to catch and correct any inaccuracies. This can help ensure that the premium audit accurately reflects your business’s actual exposures.

After the Audit

Once the premium audit is complete, the auditor will send your business a report detailing their findings. From there, you will know if your business must pay more premium charges or will receive a premium refund. If you agree with the auditor’s findings, it’s best to take any necessary actions immediately. On the other hand, if you disagree with the auditor’s report, you can file a dispute. Make sure you contact your insurance company directly for instructions on how to properly dispute a premium audit.


Understanding the premium audit process and how it can impact your insurance costs is crucial for any business. It’s important to be fully prepared for an audit and never ignore an insurer’s audit request. By following the tips outlined in this article, your business can be well prepared for a successful premium audit. If you have any questions or need further guidance, don’t hesitate to contact us today.