Part 2: Subject to Audit

If you have been in the game for a while, no doubt you are very familiar with today’s post and the words “Subject to Audit”. Almost every single general liability policy for General Contractors is going to be subject to audit and most of the policies are rated off gross receipts. What does this mean and why?

To boil it down, when underwriting your company, the carrier needs to know what their exposure is. Common sense can tell us that someone doing $25M is projects is going to be exposed to more risk than someone doing $5M. Because of this, these policies are often rated based on projected gross receipts for the policy period. Once the policy period is complete, the carrier is going to ask you to provide documentation on your actual gross receipt

If you got a policy that was rated based on $25M in gross receipts and you end up doing $30M, the insurance company already covered you for that extra $5M worth of work and are going to charge you additional premium for it. Now, the opposite is also true. If you paid premium based on $30M in gross receipts and only had $25M you should receive a premium refund for the unused portion of what you were charged.

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If you are expecting a lot of growth in your construction company it is essential you remember this concept. Growing a company can be very expensive and the last thing you want to forget about is a premium audit bill that is due in full on receipt! Interested in how to ease the blow of an audit? We have some solutions, but it takes us being involved in the entire policy year. Reach out today to see how we can help!

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