Why You Shouldn’t Skip Your Workers Compensation or General Liability Insurance Audit

Over the past year, we’ve seen a noticeable uptick in businesses delaying or skipping their annual insurance audits—and it’s a decision that can come back to haunt them. If your business has a workers compensation or general liability policy, completing your audit on time isn’t just recommended—it’s required.

Here’s why it matters and how to prepare.

Why Insurance Providers Require Annual Audits

Insurance companies use audits to confirm the details that determine your premium. When you first set up a policy, the cost is based on estimated figures, such as payroll or gross sales. But over the course of the year, those numbers can change—and that affects your level of risk.

For Workers Compensation policies, premiums are based primarily on payroll. If your payroll increased (due to new hires, raises, or bonuses), your premium might increase accordingly. On the other hand, if it decreased, you might be entitled to a refund.

For General Liability policies, premiums are often based on either payroll or gross sales. That means if your sales spiked—or dipped—during the year, your premium should reflect those changes too.

Each year, your insurer will request an audit to verify these details. This process helps keep your premium accurate and ensures you’re neither underpaying nor overpaying for coverage.

What Happens If You Don’t Complete Your Audit?

Choosing not to complete your audit can have serious consequences, including:

• Policy cancellation or non-renewal: Insurance carriers can cancel your current policy or choose not to renew it if you fail to cooperate with the audit.
• Financial penalties: Many insurers apply a penalty for non-compliance, which could mean a 20% to 50% increase on your premium—or a flat charge, sometimes as high as $2,000.
• Legal implications: Your policy is a contract. Failing to fulfill the audit requirement is a breach of contract, which can open the door to legal action.
• Higher premiums with future insurers: If your policy is canceled or marked as non-renewed due to non-compliance, it may impact your ability to secure affordable coverage in the future. Other insurers will see this history—and likely charge more.

How to Prepare for Your Insurance Audit

Preparing for an audit doesn’t have to be a stressful experience. With a little organization, it can go smoothly.

Here’s what to do:

• Schedule it promptly: You’ll usually receive a notice 6–8 weeks before your policy expires. Don’t ignore it—get it on the calendar.
• Gather your records: Have documentation ready that shows your payroll, sales, subcontractor payments, and employee duties.
• Update job descriptions: Auditors will review how your team operates. Make sure everyone’s responsibilities are clearly defined and documented.
• Review the audit results: Once completed, look over the auditor’s findings to ensure accuracy. If anything looks off, follow up immediately.

Don’t Leave Money (or Coverage) on the Table

Completing your audit isn’t just about avoiding penalties. If your business has scaled down operations, you might be eligible for a premium reduction or refund—but only if you’ve submitted the required documentation.

If you’ve received a notice from your insurance provider, don’t delay. Complete your audit on time and reach out if you have questions about what’s required.

At Chastain Otis Insurance, we’re here to help you stay protected—and avoid unnecessary costs. Our independent insurance agents work with you to create a customized coverage plan that fits your business needs today and into the future.Need help navigating your insurance audit or want to explore your policy options? Contact us today—we’re here to make sure your business is properly covered.