Why does my business get audited by my insurance company each year?
Insurance companies audit the businesses they insure for a variety of reasons, most of which are entirely benign so there’s no need to worry. Outside of audits that occur after a claim has been made, audits are done to double check application information, check whether the insured has followed their recommendations, or to verify insurance values.
When you request insurance for certain commercial risks, the insurer will typically send a field agent to verify that the information on the application is accurate and make recommendations on how to reduce risk before agreeing to issue or update the policy. For example, when insuring a restaurant, the insurer might send an inspector to check on the condition of the establishment’s fire protection equipment.
By far the most common reason for an insurance company to audit your business on a regular basis is to verify insurance values. Typically, businesses with seasonal fluctuations (like costume shops and toy stores) will insure their stock or inventory on a provisional basis to avoid under-insuring (see Business Insurance: Building, Contents, and Stock to learn more about stock insurance). In other words, they will buy a limit of insurance equal to the total value of goods in their store at their peak. Then, any unused premiums will be refunded at the end of the policy term provided certain conditions are met. In order to issue this refund, insurers will need to verify the value of your stock throughout the year to determine how often your actual stock values were below the peak.
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