Most Commercial insurance policies are subject to "audits" when it comes to General Liability insurance. Here's why!
The measure of the risk of Liability is directly related to the size of a business. In general, "size" is measured by one of two things - Gross Revenue/Sales and/or Payroll (both on an annual, policy year basis). At the beginning of a policy year, measures of exposure are considered "estimates". At the end of the policy year, it's time to "settle up", which is the purpose of the audit.
If the measure of exposure is greater than the beginning of the year estimate, the risk of a Liability loss is considered greater, and more premium is owed. If the measure is less than the beginning estimate, a refund of insurance premium is due. To avoid significant premium due as a result of an audit, it is important to predict future sales/payroll as accurately as possible.
Most, if not all, Commercial Package policies are audited. If your business is eligible for a Business Owner's Policy, most "BOPs" are not audited. Business Owner policies are designed for risks that are typically confined to a premises (such as an office exposure). Package policies are designed for risks that make/ fabricate products or perform services away from the primary location of the business (such as a construction company).
For questions on how your business is affected by insurance audits, contact your insurance agent. If anyone has questions of me, I am at your disposal.
Andrew C. Murphy CLU, ChFC, CPCU, CIC
Willis Murphy Advantage Insurance Agency