What Is an Insurance Audit?
An insurance audit is a routine review conducted by your insurance carrier (or a third-party on their behalf) to confirm the figures used to calculate your premiums — such as payroll, sales, or other business metrics.
Your audit isn’t a penalty — it’s a recalibration. It ensures your premium reflects your true operations, helping keep your business accurately covered and compliant.
At Lathrop Insurance, we see this process as an opportunity to ensure your policy continues to accurately protect your business as it grows and changes. Our team is always here to help you prepare, understand your results, and avoid surprises.
When and Why Are Audits Conducted?
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When: Usually at the end of the policy period, though some carriers may conduct a mid-term audit.
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Why: To verify actual exposures versus your original estimates — keeping your policy accurate and ensuring you’re paying the correct premium for your level of risk.
The audit will be conducted and managed directly by your insurance carrier (or a third-party firm on their behalf). While the auditing company will be your primary point of contact, Lathrop Insurance remains available throughout the process to answer your questions and step in if issues arise.
What Policies Are Typically Audited?
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Workers’ Compensation
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General Liability
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Specialty liability lines (including Liquor Liability)
Each audit reviews exposure data like payroll, sales, or operational units (e.g., tickets sold or rounds of golf).
How to Prepare
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Stay Organized All Year
Maintain payroll records, tax filings, and revenue summaries throughout the year. This saves time and reduces stress when the audit arrives.
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Know What’s Needed
Commonly requested items include:
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Payroll and quarterly tax reports
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Profit & Loss statements
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Certificates of Insurance for subcontractors
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Officer/member exclusion filings (DWC-11 for RI, 6B for CT)
Quick Tip: Many payroll providers can generate a Workers’ Compensation report that includes much of this information.
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Respond Promptly
Carriers often give limited time to complete audits. Late responses can lead to estimated audits, noncompliance fees, and/or cancellation of the policy.
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Be Accurate About Subcontractors
If you hire subcontractors, provide proof of their Workers’ Compensation insurance to avoid being charged for their payroll. For Rhode Island: If a subcontractor does not qualify for workers compensation, provide confirmation of the DWC-11-IC form filed with the State of RI.
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Ask Questions
If something seems unclear, reach out. The Lathrop Insurance team is here to explain the process, review your documents, and ensure your audit experience goes smoothly.
How Your Premium Is Impacted by Audited Figures
Insurance premiums are based on exposures — such as payroll or sales — multiplied by a rate determined by your business type or employee duties (known as a class code).
When your actual exposures differ from the original estimate, your final premium adjusts accordingly.
Example: Workers’ Compensation
An office with clerical employees has a rate of 0.11 per $100 of payroll with Carrier A.
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Estimated payroll: $200,000 → Premium = 0.11 × (200,000 ÷ 100) = $220.00
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Actual payroll: $275,000 → Premium = 0.11 × (275,000 ÷ 100) = $302.50
Result: You’d owe an additional premium because actual payroll was higher than estimated.
Example: General Liability
A restaurant with no liquor sales has a rate of 3.50 per $1,000 of food sales with Carrier B.
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Estimated sales: $1,200,000 → Premium = 3.5 × (1,200,000 ÷ 1,000) = $4,200.00
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Actual (audited) sales: $1,000,000 → Premium = 3.5 × (1,000,000 ÷ 1,000) = $3,500.00
Result: You’d receive a refund or credit because your audited sales were lower than originally estimated.
We’re Here to Help
Your business evolves — and your coverage should evolve with it. Lathrop Insurance provides ongoing support before, during, and after your audit to help you stay protected, informed, and confident in your coverage.
