Premium Audit Glossary
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A
Audit
A methodical examination of an insured's operations, records and
books of account. The audit is performed to determine the actual insurance
exposures for the coverage provided and concluded with a report of the
findings.
Auditor
He or she contacts the insured, on behalf of the company, to determine
the actual exposure that occurred during the policy period. The determination
may include viewing the appropriate business records either at the insured's
or accountant's office, or they may request verification through the
mail.
Average Weekly Wage
A calculation, which reflects the average rate of remuneration of
employees, used as a basis for determining benefits in workers compensation
insurance.
B
Basic Classification
The basic classification describes the primary business of an employer
and is not part of the standard exception classifications. The basic
classification is often referred to as the governing classification
when additional classifications are also applicable at the business
location.
An example construction or erection business classification would be Carpentry.
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C
Certificate of Insurance
A short-form documentation of an insurance policy. This form can
also be called a COI.
Classification system
The systematic arranging of properties, persons or business operations
into groups or categories according to certain criteria. The purpose
of such classification in insurance is to create bases for establishing
statistical experience and determining rates, and to avoid unfair discrimination.
Contingent Liability
Liability may be created by the acts of non-employees where the company may be held responsible. It is possible for the insured to be held liable for an independent contractor’s negligence.
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D
Deposit Premium
This is the premium that was calculated when the policy was issued.
It consists of a total of all class code premiums calculated. The premium
is determined by multiplying the applicable rate to the exposure.
Dividend
A participating compensation plan that offers profit sharing for
many insureds. Workers compensation premiums are based upon statewide
averages of accident frequency and severity. Insureds who demonstrate
a lower than average number of losses and meet specific criteria can
be given the opportunity to share in the profits of the company.
Drivers
(For general liability coverage only), employees with the sole responsibility
of driving may often be excluded from chargeable payroll if their wages
are shown separately. However, employees who perform other duties besides
driving must be placed in the highest rated class describing their duties.
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E
Earned Premium
This is the premium that is calculated on the audit statement. It
consists of a total of all class code premiums calculated. The premium
is determined by multiplying the applicable rate to the exposure.
Employers Benefit Liability Coverage
Coverage protects against claims filed by insured’s current or former employees resulting from negligent handling of the administration of the employee benefits programs The exposure is generally based on the average number of employees during the policy period.
Employers Contingent Liability Coverage
This protects the employer for injuries sustained by an employee in the course of employment where the employee is otherwise not eligible for coverage under the Workers Compensation Act. This exposure is based on the insured’s total payroll and is usually added to general liability policies sold in monopolistic states.
Endorsement
A document with language attached to and becoming part of a basic
policy for the purpose of amplifying or modifying it, either at its
inception or during its term. Any such modification can only become
effective with the agreement of the insured, unless clearly made solely
for the benefit of the insured.
Estimated Premium
The amount of premium the insured would be required to pay based
on certain estimated exposures at policy exception. This premium may
be subject to a premium audit and therefore may be adjusted based on
the premium audit results.
Experience Rating
A form of individual risk rating which takes into consideration
the loss experience of the particular risk as a credit or a debit to
the manual rate for the insureds' classification. As the size and number
of exposure units increase (i.e. a multiple location risk), more credibility
is given to the insureds' own experience.
Expiration Date
The policy term end date. This information is shown on the insureds'
policy declaration(Dec)page.
Exclusion
That which is not covered by the insurance as stated in the policy.
A clause in a policy which specifies that which is excluded from the
policy's coverage.
Exposure Base
The auditor will audit the exposure base to determine final audit
premium. The exposure base is calculated by taking the exposure times
the rate equals the premium. Exposure base is payroll, sales, or units.
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G
General Liability
Coverage for liability that arises out of the conduct
of a business. This could cover premises and operations exposures arising
out of the location of the business, and also products and completed
operations to cover damage from defective products or operations
performed. There are other coverages which may also fall under the general
liability label.
Governing Classification
The governing
classification at a specific job or location is the classification, other
than a standard exception, that produces the greatest amount of payroll
for workers compensation policies. In instances where no basic
classification is applicable, the governing classification is the standard
exception classification that produces the greatest amount of payroll.
Gross Sales
This exposure base is the gross amount charged for all goods or
products sold or distributed, operations performed and rentals. Some
deductions from gross sales include sales or excise tax, returns and
allowances and finance charges for items sold on installment.
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I
Inland Marine
Inland marine insurance covers loss to
property where there is an element of mobility. This coverage is an
outgrowth of ocean marine coverage. The coverage floats with the property
as it is moved from place to place. For example, tools, equipment, etc.
Insured
The person(s) or
party(ies) protected by an insurance policy, synonymous with assured.
ISO
Insurance Services Offices is the property/ casualty
insurance industry's leading supplier of statistical, actuarial,
underwriting, and claims data for property and liability risk.
L
Leased Employees
A business entity (insured) uses the services of a third party (Labor
contractor or leasing firm) to provide the insured with employees for
a fee.
Liquor Liability
When auditing liquor liability, the auditor will show
all liquor sales as a separate class. The liquor sales must also be
included in the products liability class since that represents a different
insurance exposure. This sometimes creates confusion since the liquor
sales totals are used twice.
Location Address
The address listed on the policy declaration page, which indicates
where the insured's business is located.
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M
Mail Audits
A form is mailed to the insured asking them to please provide us with
the actual exposures and operations that the policy covers. The insured
then returns the form back to the insurance company for review and processing.
Mailing Address
The address listed in the policy declaration where all insurance
related information is mailed to. This address can be different that
the location address.
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N
NCCI Holdings, Inc
Based in Boca Raton, FL, manages the
nation’s largest database of workers compensation insurance information.
NCCI analyzes industry trends, prepares workers compensation insurance
rate recommendations, assists in pricing proposed legislation, and
provides a variety of data products. They also produce the Scopes of Basic
Classifications Manual.
O
Overtime
Those hours worked for which there is an increase in the rate of pay. This includes:
- Work in excess of 8 hours per day or 40 hours per week.
- Work on Saturdays, Sundays or Holidays.
- Work in any day or week in excess of a guaranteed wage agreement.
Extra pay for shift differential is not considered overtime.
Ordinarily, overtime pay is equal to 1½ times the regular hourly rate. For example, a regular pay rate of $10 per hour at time and a half generates a $15 per hour overtime rate.
If the extra $5 of pay is shown separately, it is excluded in the total on payroll audits. If total overtime wage is shown in a combined amount of $15 (regular pay plus increase) and included in gross payroll, one third ($5) will be deducted from the gross pay. (State exceptions may apply)
If the overtime wage is calculated at double time, one half will be deducted from the gross pay on payroll audits.
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P
PAAS
ISO’s Premium Audit Advisory Service (PAAS) is a major source of technical information and training for premium auditors. PAAS information helps auditors properly classify exposures for commercial casualty insurance, including general liability, commercial auto, and workers compensation. PAAS also provides a liaison between premium audit managers and regulators. And PAAS focuses on the role of premium audit in insurance companies and the industry.
PAAS offers a wide range of services,
including more than 40,000 classification guides; technical bulletins and
publications; training manuals; web-based training; and educational
seminars. In addition, they extend technical advice to PAAS subscribers.
Certain fees are required to subscribe to their services
Package Policy
A combination of
property-liability coverages of two or more separate policies in one
contract with one premium.
Payroll
Commonly called remuneration. Includes wages, commissions, bonuses,
overtime pay, pay for holidays, vacations and sickness, payment for
piece work, value of meals and lodging and other substitutes for money.
(State exceptions may apply)
Payroll Audit
An examination and verification of a policyholder's records of employees
entitled to compensation, and the amounts expended therefore, which
is used in determining the premium for certain lines of insurance such
as workers compensation. Premium auditors may contact you to determine
the accuracy of the payroll figures. Certain policies written on a reporting
or adjustable form give the insurer the privilege of auditing the policyholder's
records to verify the accuracy of the premiums paid.
Payroll Division
A single employee's payroll can be divided when the employee works
in construction, erection, or in trucking operations that are conducted
as a separate enterprise. Proper records must be kept in dollar amounts
that reflect work actually spent in the above mentioned classes before
a breakdown can be applied. Without adequate records, the entire payroll
for the employee must be placed in the highest rated classification.
An estimated or percentage allocation of payroll is not allowed.
Payroll Figures
The insured or accountant provided business payroll documents for
each employee and subcontractor to confirm actual payroll pay out during
the policy term.
Phone Audits
This is when the policy is assigned to an auditor. The premium auditor
conducts the audit over the phone with the insured instead of an on-site
(physical) review.
Physical Audits
This is when the policy is assigned to an auditor. The auditor will
then obtain the actual exposures and operations from either going to
the insureds location or the insureds accountant's office.
Policy Inception
The actual date the policy is in effect and insurance coverage has
been afforded by the insurance carrier.
Policy Term
The policy coverage dates shown on the policy declaration page.
In most cases, the policy term is equal to one year.
Premises and Operations Liability Coverage
This is coverage for exposures that arise out of the ownership, or use of the insured's premises and business operations.
Premium Audit
A methodical examination of an insured's operations, records and
books of account. The audit is performed to determine the actual insurance
exposures for the coverage provided and concluded with a report of the
findings.
Premium Auditor
He or she contacts the insured, on behalf of the company, to determine
the actual exposure that occurred during the policy period. The determination
may include viewing the appropriate business records either at the insured's
or accountant's office, or they may request verification through the
mail.
Processing Center
The center processes audit information that has been sent in from
the insured, accountants, and or the premium auditors.
Products and Completed Operations Coverage
Products Liability coverage protects an insured against claims that occur as a result of an insured’s products that are manufactured, sold, or distributed. Completed Operations coverage protects against claims arising from a completed project or job.
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R
Rate
The price of insurance per unit of exposure. Each classification
has a different rate depending on the probability of loss for that class.
Premium = rate x number of exposure units.
Rating Bureau
An association of insurers which: makes rates for the use of its
affiliated insurers; devises territorial classifications, rating plans,
schedules, manuals, policy forms and building inspections; and performs
related functions for companies.
Remuneration
Commonly called payroll. Includes wages, commissions, bonuses, overtime
pay, pay for holidays, vacations and sickness, payment for piece work,
value of meals and lodging and other substitutes for money. (State exceptions
may apply)
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S
Sales Figures
The insured provides sales figures to the auditor to confirm the
sales audit figures.
Special Classification
Certain categories of work are common to many businesses and grouped
together in special classifications. The special classification includes:
clerical office employees, drafting employees, drivers, chauffeurs and
their helpers, salespersons, collectors or messengers-outside, and automobile
salespersons. Special classifications are called standard exceptions
in most states and rated separately from the basic classification.
Standard Exceptions
Certain categories of work are common to many businesses and grouped
together in special classifications. These special classifications are
called standard exceptions and rated separately from the basic classifications.
The standard exception classification includes: clerical office employees,
drafting employees, drivers, chauffeurs and their helpers, salespersons,
collectors or messengers-outside, and automobile salespersons.
Standard Premium
Standard premium means the premium determined on the basis of authorized
rates, any experience rating modification, any applicable schedule rating
modification, loss constants and minimum premiums. The expense constant
and taxes should be excluded from determination of the standard premium.
Subcontractors
The term "subcontractor" is often interchangeable with
"independent contractor." We ordinarily apply the definition
to subcontractors performing construction, erection or structural alteration
for a general contractor. Most workers compensation laws hold you responsible
for employees of an uninsured subcontractor. In some states, they may
extend to an uninsured subcontractor without employees if an employee-employer
relationship can be established. These people will also be charged under
a liability policy as though they were your employees if there is no
certificate showing evidence of insurance. Subcontractors can easily
obtain a Certificate of Insurance through their insurance agent. State
exceptions may be applicable.
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T
Test Audit
An audit conducted by workers compensation bureaus to check the
accuracy of insurer's premium audits.
Test Audit Program
To ensure uniformity in the applications of classifications, rating
plans and manual rules.
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U
Ultra Contractors Policy
This is a Safeco specialty contractor’s liability policy for smaller artisan contractors. The exposure base is total number of employees, both full and part time. Part time employees are defined as those working less than 120 days in the policy period.
Ultra Specialty Services Policy
This is a Safeco specialty services contractor’s liability policy for smaller service contractors. The exposure base is total number of employees, both full and part time. Part time employees are defined as those working less than 120 days in the policy period.
V
Vendor Company
Vendor companies are independent auditing firms that will conduct
physical audits so the audit can be billed. They are independent or
other than a company field auditor. They are normally used in areas
where we do not have a company auditor.
Visual Audit
A software company that sells premium audit application software. Safeco auditors use this automated product to complete their premium audits.
Voluntary Audit
A form is mailed to the insured asking them to please provide us
with the actual exposures and operations that the policy covers. The
insured then returns the form back to the insurance company for review
and processing.
W
Waive Audit
This is when a physical, phone or voluntary audit is not performed
on the policy and it is closed on the estimated premiums. This is usually
done on small premium policies.
Workers Compensation
Part One -- Workers' Compensation insurance agrees to pay the benefits required under the Workers' Compensation law. Benefits payable include medical costs and lost wages (up to statutory limits).
Part Two -- Employers' Liability insurance provides coverage for your legal liability to employees not covered by the Workers' Compensation law.
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