What Is Audit Premium?

Some coverages cannot be priced exactly in advance because the exposure moves. Workers’ compensation is rated on payroll by class code, and general liability is often rated on sales or subcontract cost. At inception the carrier uses the insured’s estimate to set a deposit premium. After expiration it audits the real numbers, by phone, mail, online submission, or a visit to the books, using payroll records, tax filings, and certificates for subcontractors, then recalculates. The difference becomes an additional bill or a refund.

Audit bills start conversations. A contractor who just received a large one is a motivated listener, and a producer who explains how to estimate payroll accurately, track subcontractor certificates, and separate the premium portion of overtime pay where the rules allow it can win the account at renewal. Agents who quote on a low estimate to win a deal are borrowing against the audit, and the business owner will remember who set that estimate.

Subcontractors are the classic trap: payments to a sub who cannot show their own insurance are often treated as the insured’s payroll. Misclassified employees get moved to a different rate, and a business that refuses to cooperate may find the carrier estimating the figures itself. An audit is not a tax audit or a claims review, and it can produce a refund when the business turned out smaller than projected.