A General Liability Insurance audit is when your insurance company takes a closer look at your business’s financial records, like payroll and income statements, to see if your current policy accurately matches your risk. Why? Because your business doesn’t stay the same from year to year—your payroll, sales, or even the size of your operations might change. An audit helps make sure your coverage and premiums reflect your actual situation. Usually, this check is done by an auditor from your insurance provider or a third-party professional, for assessing the on-the-ground reality of the client company.
Why is an Audit Necessary?
Just because your policy has ended doesn’t mean you’re completely off the hook. Policies like general liability and workers’ compensation are “auditable,” which means your final bill isn’t settled until your audit is done. Sometimes, the insurance company will run these audits weeks or even months after your policy ends—and it might overlap with your new coverage period. So, don’t be surprised if you get another bill for a policy that’s already expired. It’s standard practice and helps ensure you’re paying a fair rate.
What Does This Mean for Your Insurance Costs?
For workers’ comp, the cost is based on your payroll. With general liability, premiums can depend on several things—your payroll, sales, building size, and sometimes flat fees. Since these factors change from year to year, the audit is a way to make adjustments. If your business grows, you’ll probably owe more because there’s more risk to cover. If you scaled down, you might get some money back. It’s about matching the cost of your insurance to the size and scope of your business.
Why Should You Care?
It’s simple. These audits protect you and the insurance company. They make sure you’re not overpaying (or underpaying) for coverage based on what’s really happening in your business. So, even though they can be a bit of a hassle, they’re necessary to keep your coverage accurate and your costs fair.
Getting Ready for a General Liability Audit
If you’re a small business owner, prepping for a general liability audit means making sure your records are organized and ready to go. Start by gathering all your insurance documents to show what coverage you currently have. Then, pull together your payroll details, especially if you’ve got subcontractors on the books. Make sure to highlight any changes in payroll—like spikes or dips—so the auditor can get an accurate snapshot of your employee numbers and risk.
What to Expect from the Audit Process
Here’s a quick breakdown of how it all works:
Heads-Up:
Your insurance company will let you know when it’s time for an audit, usually near the end of your policy term.
Why It’s Happening:
The premium you’ve been paying is just an estimate. The audit helps the insurance company check whether the coverage matches your actual risk. They’ll review things like payroll and sales numbers. Based on what they find, your premium could go up, down, or stay the same.
What If You Skip It:
Not completing the audit can cost you big time. In some places, like Minnesota, skipping out could land you an Audit Noncompliance Charge (ANC), which can be up to 200% of your regular premium. So, if your usual premium is $500, that’s an extra $1,000! Definitely worth completing the audit, right?
What Documents Should You Have Ready?
Here’s a quick list:
- Payroll reports
- Sales records
- Tax forms like W-2s and 1099s
- Insurance certificates for any subcontractors
- Financial documents (e.g., income statements, balance sheets)
How to Submit Your Information
Once you’ve got everything in order, send it over to the auditor. They’ll usually prefer email, traditional mail, or an online submission portal. Make sure you confirm the deadline to avoid any late fees.
What If They Need to Visit?
If your business is large or has a complicated structure, the auditor might ask for an on-site visit. To prepare, consider doing a quick internal review of your records. That way, everything’s organized, and you’ll breeze through the inspection.
What Happens Next?
The auditor will review your numbers and compare them to what you initially estimated when setting up your policy. If there’s a big difference, they’ll let you know if your premiums need adjusting.
What Can Change?
After the review, your insurer will tell you if there’s a change in your policy or premium. You could get:
- A refund if you’ve overpaid.
- A higher premium if your business grew or took on more risk.
Why Bother?
The audit isn’t just about following the rules—it’s how your insurer checks that your coverage actually matches your risk levels. Being prepared helps keep your business protected and might even save you some cash down the road.
Frequently Asked Questions (FAQ) about What’s a General Liability Insurance Audit?
1. How often do general liability audits happen?
Usually, they’re done once a year at the end of your policy term. But if your business changes a lot—like adding new services or growing fast—an audit could pop up mid-term to make sure your coverage is still a good fit.
2. Will I know ahead of time before the audit?
Yes, your insurance company will send you a heads-up and let you know exactly what documents they’ll need. It’s a good idea to start gathering your records as soon as you get the notice to keep things running smoothly.
3. Are general liability audits just for big businesses?
Not at all! Small businesses get audited too. Whether you’re running a small boutique or managing a bigger operation, your insurer may still want to review things to make sure your coverage lines up with your current risk level.
4. Will my premium go up right after the audit?
Not always. If they find out your business has grown or taken on more risk, your premium could go up. But most of the time, changes won’t kick in until your next policy renewal—unless there’s a big discrepancy that needs fixing right away.
5. What’s the difference between an in-person audit and a mail-in audit?
An in-person audit is when someone from the insurance company visits your business to look over your documents in person. A mail-in audit is when you send in your records through email or traditional mail. Which one you get usually depends on how complex your business is.