Liability Insurance Premium Audit and Policy Reviews
We have been performing Workers Comp policy and Liability Insurance premium audit reviews for many years. The need for liability audit and policy reviews became very apparent when I attended the NSIPA Conference a few years ago.
There a very few, if any companies that actually perform this type of review for employers at this time. The genera liability insurance audits center more around proper certificates of insurance, especially in the construction industry.
I had thought that addressing liability insurance reviews may not be a good strategy until I read this article on GL audits from a northern California construction firm. The text from the articles is in the next two paragraphs. I do agree with the subsequent bloggers on the question of audits as unfair business practices.
My liability insurance companies audit methods seem unfair or at the least unforgiving. As many of your know our service regions are often very large and we often take in many remote sub-contractors to handle remote jobs. It’s often not possible to get a new sub-contractors insurance certificates before they begin work.
Then after the fact the sub-contractor is unwilling to provide a copy unless additional work is available. Then at the end of the year you get audited and get charged for all your paid out revenues for your sub-contractors that you’re unable to provide insurance certificates. Also, with some carriers you get also charged an audit premium for paid out material and equipment costs to sub-contractors. If you have had similar experience please contact me off-line. Some of this possibly is an unfair business practice on-part of the insurance carriers.
I will see if I can add some material from our two new liability auditors during this week.
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3 Responses
Several different issues here. Lets break them up for clarity with suggestions on how to mitigate any additional premium charges.
1. If you hire subs, and they are unwilling or unable to provide a certificate prior to the work starting, my suggestion is to withhold the amount it will cost you from their payment until it is received. (cost of the job x the rate – say it is 10% for simplicity). This is based on the assumption that you will be paying for this uninsured sub at the time of audit. Now the sub with a financial motivation will provide a certificate very quickly in order to get the rest of his payment (the amount withheld).
If the sub complains to much about any amount being withheld, and is unmotivated to provide the certificate, then he is likely uninsured, and you would be having to pay for him anyway at the time of audit. However, with this strategy, you have withheld the cost from his payment and now just need to transfer the money withheld from the uninsured sub to your insurance carrier, but al least you are not out of pocket.
2. There should always be a detailed bill from the subcontractor that list the amount of labor and material that they are billing you for the work they do for you as a subcontractor. For example, a masonry sub who supplies their own materials would have approximately a 50% material and 50% labor for the work they do on a job. The invoice should reflect that in dollar amounts.
If you have to pay on this uninsured masonry sub, then simply present the invoice to the auditor who should deduct out the cost of the materials listed on the subs invoice, and then charge for the labor only cost for that subs invoice if they are uninsured. In this manner, if you have to pay for a sub, then you are only paying for the labor cost which is better that paying for materials as well.
One caveat to this method. If you try to get to excited by having the masonry sub submit an invoice which shows 80 to 90% of the cost of the job as materials, and only 10% as labor you run the risk that the auditor will ignore all of the invoices as deceptive and charge the entire amount of the invoice as uninsured subs. Yes, auditor types know what percentage of materials should be present for the various types of constructions subs who provide their own material.
Another method is for the contractor to pay for all material directly, and have the subs only provide labor for the installation. Then you will truly have only the labor costs for any subs that turn out to be uninsured with no certificate that the insurance company will charge you for. If you had taken my first suggestion and withheld the cost from them, at least you won’t be out of pocket for their lack of insurance.
An old auditors 2 cents worth of advice. CG
While I have used certain PL products for exterior masonry, and these have seemed to hold up for a number of years I would be somewhat reluctant to do so where there might be some danger of a tile falling.
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