Death, Taxes, and Audits MGA Ep. 3 w Melanie Mobeck
Join Commercial Lines Underwriter, Melanie Mobeck, and Colorado Marketing Representative, Peter Constas, as they discuss the different types of audits, how to navigate them, and Melanie's insurance story.
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Peter: Good morning everyone. I hope you're having a wonderful Wednesday. My name is Peter Constas and I'm the marketing representative for Chris Leef General Agency here in the Colorado area, and this is making great, amazing.
Peter: I'm joined today with Melanie Mobeck, an underwriter here in the Westminster office, and we are here to talk about audits. But before we get into that, Melanie, how are you doing today?
Melanie: I'm not doing too bad. How about you, Peter?
Peter: I'm doing pretty good. Uh, it's a, it's a beautiful Wednesday today. The weather's doing pretty well. Hopefully it'll stay like this for a little bit. But yeah. So we are here today to talk about audits. Now, as listeners know, I'm pretty new to the insurance world. Um, what is an audit?
Melanie: An audit is a tool that carriers use to determine the actual exposures on a policy after it expires. Policies are written with estimated exposures from inception and during the course of a policy term.
Melanie: Sometimes those exposures will change. Exposures, meaning sales, payroll, things like that, and the carriers use audits as a tool to determine. , the actual exposure for the policy period.
Peter: Okay. So could you maybe give me an example of how an exposure might change?
Melanie: Uh, well, a contractor may start out at the beginning of a term, and they may be owner only during the course of the year.
Melanie: They pick up more work than they anticipated, so they hire an employee. Adding an employee increases the risk exposure for that particular contractor. If it wasn't done by endorsement, an audit would pick that up at the end that they had more payroll than anticipated at the beginning of the policy. Um, another example would be a policy starts out and it's sales based, and they have an influx of sales that they didn't anticipate.
Melanie: And at the end of a policy period, uh, the rec, the financial records would be examined to determine. . If they sold more than they anticipated, therefore the sales exposure would increase and an audit will catch that.
Peter: Oh, I see. Okay. So now that we know what kind of the baseline of what an audit is, um, what do they look like?
Melanie: They look like an endorsement when they're all said and done.
Melanie: And depending on if there's additional premium due. , uh, it would be accompanied with an invoice. There are other types of audits that we'll get to that are considered closed, even meaning that the estimated policy exposure, either payroll or sales, Was adequate for that particular policy term and results in no additional premium.
Peter: Okay. So let's say, um, an underwriter or there's a producer out there that's just, you know, getting into the game, um, what kind of information would you give the, the younger. Person or the newer person to talk about what they need to know about completing an audit?
Melanie: Well, one, to expect an audit at the end of a policy term, uh, that's something that some insureds have indicated that they were not aware of, and every one of our carriers has a form of some sort on their policy.
Melanie: That will explain that there's an audit condition and every carrier has the right up to three years after a policy expires to audit their financial records.
Peter: Oh, okay.
Melanie: Or a particular term. So one, just know that the. The audit condition exists and that it's part of the contract that they sign when they purchase the policy.
Melanie: The other piece would be to keep track of their payroll or their sales and some capacity. So that one, they should be doing that anyway for tax purposes.
Melanie: That information's going to be requested and reviewed at the end of a policy term. Without that information, it makes completing an audit very difficult.
Peter: Mm-hmm. , I see.
Melanie: The insured initially, and for anybody in the process along the way.
Peter: Mm. Okay. So you hear, to hear first folks. If you're a new producer, make sure that you know that audits exist and that you're telling your insured about it. What kind of challenges have you come across doing Audits?
Melanie: Primarily insured involvement from the beginning of the process, if that's the number one challenge is getting them to participate and complete the audit.
Melanie: Uh, that follows shortly after a policy expires. That's the number one challenge is getting participation and compliance at that point.
Peter: Mm. Okay. So let's say you got, uh, an insured that's trying to do it by the book. How would an insured perfectly comply with an audit?
Melanie: Well, the first thing, um, when they start receiving notifications from the carrier or the audit company that a carrier hires.
Melanie: They will start requesting information. The first step is to respond to them in a timely fashion. Carriers typically hire an audit company that will reach out to directly to an insured. Usually they can collect the information over the phone or on a web based application that the audit company uses occasionally, and a carrier will order an onsite physical audit, which is rare, but it does happen depending on the nature of the business and the complexity of their financial records.
Peter: So we were talking a little bit about the different types of audit. You mentioned, uh, the phone audit in person, physical audit. What is a self audit?
Melanie: A self audit is when. The insured is asked to complete a form that requests specific payroll or subcontractor information or sales information based on their specific policy classification, and it's really them just filling out a form and providing the supporting documentation to go along with.
Melanie: Um, that is literally the easiest type of audit because they submit the records. The audit company will then review them, process it and return it to the carrier, and the carrier will then generate an audit with additional premium if additional premium is due. Um, but the audit company does that for them.
Melanie: Um, so a self audit is also comes into play after multiple attempts have been made by a company. to complete an audit. Some of our carriers will allow later on in the process will allow an insured or to complete it at that time, and the carrier carrier will then review that information versus an audit company.
Peter: I see. Okay. Is there anything else that a new producer or a new agent would want to know about audits?
Melanie: With any contractor that is, um, subject to audit if they have subcontractors, one of the things they should be collecting is subcontractor certificates as evidence of insurance so that they, the insured doesn't have to pay a higher payroll rate for that subcontractor's operations.
Melanie: So having evidence of their, if our contractor uses subcontract, , um, they need to keep track of those sub costs as well as the evidence of insurance for those subcontractors.
Peter: So, Melanie, once the audit is completed and everybody's complied, what if the insured has some problems with that figure that the audit has produced?
Melanie: Well, um, they can dispute the audit and they are able to provide additional supporting documentation. , uh, to support that. So if, if there was a typo on the audit or if there was a figure that was written down incorrectly or provided incorrectly, the insured can dispute that audit. And there's a process that we go through and all we need is some supporting documentation to support the figure that they feel should be used, whether it's for payroll or sales. The carrier can review that and generate a revised audit.
Peter: So Melanie, um, let's say a business does really well one year and, uh, their premium tends to go up, and what, how can an insured navigate that higher premium?
Melanie: In a lot of cases, the carriers are receptive to payment plans on audits, and all they have to do is discuss that with their agent and make the request back to Chris Leef.
Melanie: And most of our carriers are pretty accommodating when it comes to payment. At a certain premium t. We can usually make that happen so that they're not hit with a large premium audit two months after their policy expires and they just paid their renewal premium.
Peter: Okay. That's a good tip to have. So, enough about the, uh, the audit.
Peter: I'm sure that's not a very pleasant process for a lot of people. I'm, I'm curious cuz. Yeah, when I go out on agency visits, I meet a lot of people and I, I always ask 'em a question is, uh, how did you get into insurance? And it's interesting because it seems like a lot of people, they kind of just fall into it and, uh, there's a lot of diverse lifestyles within the insurance industry. So I'm wondering, Melanie, how did you personally get into insurance?
Melanie: I, before I landed in insurance, I worked for a large general contractor who was part of a captive group, and they were sort of self-insured.
Melanie: So I helped work on their work, their work comp claims, and managed their fleet program and dealt with a little bit of their general liability and I,
Peter: Did you ever have to experience an audit on the other end?
Melanie: I was part of audits for work comp.
Peter: I see.
Melanie: Not, not for the general liability.
Peter: Oh, okay.
Melanie: Portion of it.
Melanie: But, um, I, I knew about them and different things go into work comp audits versus commercial insurance. So there's, and there's also some similar overlap between the information they collect, but yeah. That's where I came from. And then I landed a job in surplus lines and was told to forget everything I thought I knew and. They would teach me and here I am, 10 years later.
Peter: Nice. Nice. Well, thank you so much, Melanie, for coming on. I know, uh, you got a busy schedule and a podcast is a nice little detour from all the audits that you're completing.
Peter: Uh, So, yeah, I just wanna thank you so much for taking the time to talk with me today and, uh, thank you listeners for listening. You can tune in every other Wednesday for another episode and may the commission be high and the hard times pass you by. See you in a couple weeks, folks!