Did you know your general liability policy is auditable? Are you aware what that means? When we quote a price for your coverage, we use your estimates of your total cost of construction plus your payroll for any work you might have your own employees doing for you. These figures are really your best guess for the next 12 months. Many things can happen to increase, or decrease your costs and / or payroll including much that is beyond your control. That’s why we audit your books at the end of each policy period to come up with a final premium for that term.
It is easy to see how a low estimate at the beginning of the policy term can lead to a high additional audit premium at the start of next year’s term. So, how can you avoid AUDIT SHOCK?
Simply know your business. You know what you’d like to accomplish in the next year, but do you know what is going on elsewhere in the home building industry that can have a direct impact on your costs? For example, what are materials costs doing? As this article is being written, the cost of lumber in the US is going through the roof, if you’ll pardon the pun. Even if you plan to build the same size and number of homes as last year, your costs will be greater because you will have to deal with much higher lumber prices. And yes, RIA does include the cost of materials in your total construction costs. Why? If the home you built burns to the ground as the result of a covered loss, you would not expect us to cover everything except the lumber. Therefore, we use materials costs to help calculate the most accurate and fair premium we can.
When all is said and done, the amount of general liability premium you pay will be based on the costs and payroll you actually have. With a little planning, you can avoid AUDIT SHOCK.