Joe Buick - Vice President

With the economy now seemingly coming off of the “bottom” in some markets, business owners are seeing growth. With this growth comes higher sales and payrolls. Insurance policies that are exposure-rated on Sales and Payroll need extra attention and this attention may be needed not just during renewal time.

CFOs and business owners understand that premiums specifically associated with General Liability/Product Liability and Workers’ Compensation are calculated with a simple formula of exposure multiplied by rate. Generally speaking the rate will remain static during the policy period (to those that are operating in the contracting business where you are “quoting” projects be careful; work comp rates can change subject to carrier filings).

Assuming the rate does stay the same, the only variable in the calculation is the exposure. As a growing business owner or if your job is to manage your company’s insurance program, are you accruing for probable insurance audit bills that are calculated with this exposure and rate formula? To do this you will need to know what your current rates are (the rates delivered to you in your last renewal). At times depending on how detailed or transparent your insurance program is presented, the rate may not be easily ascertained. If you are unsure what the rates are for GL and WC inside of your insurance program, it should be a simple call you your agent or direct carrier rep to supply this.

When requesting your rates for these policies, ask specifically for “net” rates especially in the area of workers compensation. Credits or debits are applied to base rates that result in a net rate. Once you are able to get the net rates, you can multiply this with the current accurate exposure throughout the policy period to adequately accrue for upcoming audits. If Sales and Payroll jump 20% during the year and you are paying $100,000 for your GL and WC program, you will undoubtedly receive a audit bill 30-60 days from the policy expiration date. The Audit bill may not be a straight 20% increase/bill depending on credits and other variables, but a bill for $10,000 to $15,000 would not be unusual.

Has your agent supplied regularly and reviewed WC and GL rates to help you budget for audit bills and to avoid surprises?

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