Introduction – What Is a Construction Insurance Audit?
If you’re a contractor or construction business owner, chances are you’ve received a notice of an insurance premium audit from your provider. Don’t panic—this is a standard process. Insurers conduct these audits (especially for workers’ compensation or general liability policies) to compare your estimated exposures—like payroll or receipts—against what actually occurred during the policy period.
In short, the better your documentation, the smoother your audit. You’ll also reduce the risk of overpaying due to incorrect assumptions or missing proof.
Step 1: Gather Financial Records
Start by pulling together key financial records. Your insurance auditor will want to verify:
- Payroll reports (gross wages, overtime, bonuses, etc.)
- Employee registers (including roles and hire/termination dates)
- Overtime logs (these can be discounted in workers’ comp audits)
- Project contracts or total revenue records, if the policy is rated based on gross sales
💡 Tip: Make sure your records cover the entire audit period (usually your prior policy year).
Step 2: Subcontractor Documentation
Subcontractors are a common reason for premium increases during audits. Here’s what to prepare:
- Certificates of Insurance (COIs) for all subcontractors showing active coverage during the policy period
- 1099s or independent contractor agreements
- Scope of work documentation proving the subcontractor operated independently
⚠️ If a subcontractor didn’t have proper insurance, your carrier may classify them under your payroll and charge you.
Step 3: Break Down Labor by Job Codes
Construction often involves multiple class codes with varying levels of risk—and cost. Organize your payroll into job-specific categories:
- Use timecards or job sheets that clearly show the hours worked per job type
- Match those job descriptions to correct classification codes (e.g., framing vs. finish carpentry)
- Include supervisory or admin staff separately, if applicable
🧾 This avoids getting charged at a higher rate for all payroll if only a portion involved high-risk work like roofing or demo.
Step 4: Verify Insurance Policies and Officer Exclusions
Ensure your audit package includes:
- Current insurance policies
- Owner/officer exclusion forms, if they’re exempt from workers’ comp
- Wrap-up insurance details if your company participated in a project with a consolidated policy
✅ This prevents double charges and ensures your audit reflects only your company’s direct exposure.
Step 5: Check the Common Audit Red Flags
Before the auditor walks in, take time to verify common areas that can lead to premium adjustments:
- Is overtime properly documented and categorized?
- Are owner and officer salaries capped appropriately by state limits?
- Are clerical, sales, and low-risk positions excluded from higher-risk job classifications?
- Are subcontractors without COIs identified clearly?
🛠 The goal is to tell a clean, organized story about your operations—and back it with paper or digital proof.
Preparing Your Team for the Audit
Don’t go it alone. Assign a single point of contact from your team—usually someone in finance or operations—who can:
- Access documents quickly
- Explain payroll allocations or job classifications
- Communicate with the auditor clearly
💼 Keep all your audit documents in one centralized folder, whether digital (Dropbox, Google Drive) or a physical binder.
During the Audit: Be Transparent and Responsive
When the audit starts, be helpful:
- Provide only the documents requested
- Be honest with answers—auditors respect transparency
- Keep a log of what was shared
🧾 Ask for a summary report after the audit and review it to ensure no mistakes were made.
Conclusion – No Surprises, Just Savings
Insurance audits don’t need to be painful. When you’re organized and proactive, audits become opportunities—not liabilities. You’ll avoid overcharges, stay compliant, and may even build a better rapport with your insurance provider.
🧱 In construction, trust is built on solid foundations. The same goes for your insurance: Good documentation is good protection.