When it comes to Commercial General Liability insurance, some business owners are not aware their General Liability insurance for that year is based on assumptions. So you can imagine how surprised they are at the end of the year when they get their Premium Audit paperwork in the mail. Usually the first person that gets to hear about it is the agent. Since it comes up every so often, I figured I would explain the details.
Lets say you are starting a business and you obtain an insurance quote from an agent. The agent most likely asked you what your gross sales and/or payroll is going to be. It's a start-up business and you estimate gross sales are going to $800,000. 12 months rolls around and you blew those figures out and did $1,500,000 in gross sales. You get your Premium Audit figures and fill in the actual numbers. A month later you get an unexpected bill in the mail from the insurance carrier, which definitely warrants a phone call to your insurance agent. Your insurance agent explains everything and you learned something new. Obviously this information would have been helpful at the beginning of the policy term.
Looking at it from a different outcome, let's say you estimate $1,500,000 and you actually did $800,000. Most likely, if you are with a standard market insurance company, you will get a check back because you paid more than needed. This is known as a two-way audit. If you are with a non-standard or non-admitted insurance company (also known as surplus lines market), you would most likely not get anything back. This is known as a one-way audit.
So when getting a General Liability Insurance quote, make sure you use realistic numbers for both gross sales and payroll. When it comes to Workers Compensation, the same applies. Bottom line, and most importantly, the initial quote is really only an estimate. Here are some tips to avoid surprises:
If you have any questions about your General Liability Insurance audit or any questions about your business insurance, please feel free to call or email me.
Jason Matison | Business Insurance Agent | Austin, Texas