What is a premium audit, and why is my insurer doing one?
Most commercial policies are priced on an estimate of something that has not happened yet — your payroll, your sales, your receipts — and the audit reconciles that estimate against what actually occurred. You are billed or refunded the difference. It applies to workers compensation, general liability and several other lines, and it is routine rather than an accusation.
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What this means for you
- THE BILL IS ARITHMETIC, NOT A PENALTY. You are being invoiced for coverage you already had, on exposure you already ran. That is worth understanding before you argue, because it changes what you argue about — the number is only wrong if the exposure figure or the classification is wrong.
- A STALE ESTIMATE IS THE MOST COMMON CAUSE, AND IT IS A BROKER FAILURE. We took over a bar and restaurant whose broker had not updated their annual receipts on the application for three consecutive years. The business grew; the estimate did not; and every audit produced a bill approaching the size of the premium itself. The client thought they were being gouged. They were being under-quoted, then invoiced for the shortfall, on repeat.
- A FLAT PREMIUM ON A GROWING BUSINESS IS A WARNING, not a win. If your revenue is up forty percent and your quote came back at last year’s number, nobody has updated the exposure and you are accruing an audit bill you have not been told about.
- THE BASIS DEPENDS ON THE POLICY. Workers compensation audits payroll. General liability audits gross sales, receipts, payroll or square footage depending on the class. Some policies also pick up subcontractor costs separately. Know which figure yours turns on, because that is the one worth getting right.
- SUBCONTRACTORS APPEAR ON BOTH. On workers compensation and general liability alike, a subcontractor you cannot prove was insured typically gets treated as your own exposure. One missing certificate can outweigh a year of growth.
- ESTIMATE HONESTLY, NOT OPTIMISTICALLY. Deliberately low estimates buy a cheaper quote and an expensive settlement, plus a cash-flow shock at the worst possible time. Deliberately high ones lend the carrier money interest-free for a year. Neither is clever; the accurate number is the cheap one.
- PUT THE MONEY ASIDE IF YOU HAVE GROWN. If you know revenue or payroll ran ahead of the estimate, the audit bill is a known future cost rather than a surprise. Businesses rarely fail to pay because the bill was unfair; they fail to pay because it arrived in a month they had not planned for it.
Related questions
- Which policies get audited?
- Workers compensation almost always. General liability very often, where the rating basis is sales, receipts or payroll. Commercial auto sometimes, where it turns on mileage or unit counts, and several specialty lines including liquor liability, which is rated on the alcohol share of receipts. Package policies can be audited on one component and not another. If you are unsure, the declarations page states the rating basis and whether the policy is auditable.
- How alcohol receipts are rated — and counted twice
- Do I have to let them audit me?
- Yes. Cooperating with the audit is a condition of the policy you signed, and refusing has consequences well beyond the bill you were avoiding: carriers may issue an estimated audit at a punitive multiple, cancel the policy for non-compliance, and refer the balance for collection. It also becomes a question you have to answer at every future renewal. There is no version of this where declining improves the outcome.
- Can an audit produce a refund?
- Yes, and it is more common than people expect — a business that contracted, lost a large contract, or shifted work into a lower-rated class can finish the year having overpaid. Carriers process return premiums perfectly reliably, but nobody pursues them on your behalf with the energy they apply to a shortfall. That is a reason to complete the audit properly in a lean year, not just a good one.
- How can a broker actually prevent this?
- By treating the exposure figures as live numbers rather than as boxes filled in once. That means asking for current payroll and receipts at every renewal rather than rolling forward what was on file, telling you when an estimate has drifted from reality, chasing subcontractor certificates during the year instead of at audit, and checking that your class codes still describe what the business does. None of that is difficult. It simply has to be somebody’s job, and on the account above it had not been for three years.
- What to ask before you pick a broker
Need this handled?
We do the filings, and we place the accounts other brokers decline — lapsed authority, claims history, new ventures. Tell us the situation and a licensed human replies the same business day.
Written by the licensed brokers at Boring Insurance. Last updated 2026-08-22. See all guides.