We had a client that ended the year with sales of 7.4 million, but had us order the insurance renewal at 2.5 million. This comes up every once in a while. I think there are people out there who think that if they just say their sales are low, they’ll get a reduced premium. But the policies are auditable, meaning that after the next renewal, the company will do the audit, and they’ll determine what the actual premium should have been based on the audit information. Some people still try because they think they’re going to get away with something, but oftentimes it backfires.
This happened unintentionally with a client who just started a business. They hadn’t hired their first employee yet, but they were about to. So, we wrote them a little Worker’s Comp policy, but when we got to the end of the year, they had 47 employees. Then when we got the renewal and, based on this greatly increased payroll, the renewal got some discounts applied to it. A month later we did the final audit. Even though they paid a premium for the policy they had that year, the additional premium on the audit was greater than the renewal premium we just charged them. That’s because the rate was different.
Sometimes when we talk to clients, we’ll understand that they’re just trying to save some money right now, and we’re okay with that. It can be a cash flow problem, and they just need to lowball it upfront because they don’t have the money. But an important thing to note is that if we know the bigger numbers up front, oftentimes we can negotiate a better rate with the underwriter and get some discounts applied. When we go with the lower numbers to begin with, then we can’t get those discounts, and when the audit comes around with a big number we’re just stuck. It can be frustrating. Several times we’ve had clients stuck with a big final audit, and we know that if we had known these numbers up front, we could have gotten them a lower rate.
So when clients think they see a loophole and say, “Oh, it’s based on sales? If I just told them 2.5 million instead of 4.5 million then I can save a bunch of money,” I say…not really.