As an insured business, you rely on excess and surplus (E&S) insurance to cover risks that standard policies can’t handle—think high-hazard operations, unique liabilities, or niche industries. Recently, some E&S carriers have started auditing their excess policies to ensure premiums, terms, and risks align with today’s volatile market. These audits can lead to higher premiums, adjusted coverage, or even non-renewals if your policy doesn’t pass muster. The good news? You can take proactive steps to prepare and protect your business. Here’s how to get ahead of excess policy audits.
Why Are Carriers Auditing Excess Policies?
E&S carriers are auditing to manage rising claims costs, adapt to a hardening insurance market, and meet demands from reinsurers for better financial discipline. They’re scrutinizing premiums, attachment points (where excess coverage kicks in), policy terms, and loss history to ensure policies are sustainable. For insureds, this means more oversight and potential changes to your coverage.
How to Prepare for an Excess Policy Audit
To navigate an audit smoothly and maintain favorable excess coverage, follow these practical steps:
1. Keep Detailed and Accurate Records
Carriers will examine your risk profile to confirm your premiums reflect your actual exposures. Incomplete or outdated information can trigger red flags.
WHAT TO DO:
- Maintain up-to-date records of your operations, including revenue, employee count, and asset values.
- Document any changes in your business, like new locations, equipment, or services, and share these with your broker.
- For high-risk industries (e.g., construction or manufacturing), provide detailed safety protocols and loss control measures.
2. Understand Your Policy’s Attachment Points
Excess policies activate after primary coverage is exhausted. Auditors check if attachment points are appropriate to avoid overlap or unexpected payouts.
WHAT TO DO:
- Review your primary and excess policies with your broker to ensure clear, logical layering.
- Be ready to justify why your attachment points suit your risk profile, especially for volatile exposures like cyber or environmental liability.
3. Tighten Your Loss Control Practices
Carriers are digging into claims history to spot patterns that suggest underpriced risks or weak risk management.
WHAT TO DO:
- Implement robust safety programs and document compliance with industry standards.
- Track and analyze past claims to identify trends, then address root causes (e.g., equipment failures or employee training gaps).
- Share your loss control efforts with your carrier—they can demonstrate your commitment to reducing risks.
4. Work Closely with Your Insurance Broker
Your broker is your advocate during an audit. They can help present your risk in the best light and negotiate with carriers.
WHAT TO DO:
- Provide your broker with comprehensive, accurate underwriting submissions upfront.
- Ask your broker to review policy terms for ambiguities that could cause issues during an audit.
- Stay in regular contact to address carrier questions quickly and avoid delays.
5. Anticipate Tougher Terms and Plan Ahead
Audits may lead to higher premiums, stricter conditions, or reduced capacity for certain risks. Being proactive can soften the impact.
WHAT TO DO:
- Budget for potential premium increases, especially in high-risk sectors like energy or transportation.
- Explore alternative coverage options with your broker, such as higher deductibles or captive insurance, to manage costs.
- Start renewal discussions early to give your broker time to shop the market if needed.
The Benefits of Being Prepared
Getting ahead of an excess policy audit does more than just satisfy your carrier—it strengthens your insurance program. By maintaining clear records, showcasing strong risk management, and collaborating with your broker, you can:
- Avoid surprises like unexpected premium hikes or coverage gaps.
- Build trust with your carrier, potentially securing better terms or renewals.
- Position your business as a desirable risk in a competitive E&S market.
Final Thoughts
Excess policy audits may feel daunting, but they’re a sign of a maturing E&S market that’s prioritizing sustainability. As an insured, your best defense is preparation. By staying organized, proactive, and engaged with your broker, you can navigate audits with confidence and keep your excess coverage working for you. If you have any questions about whether or not your current excess policy is auditable or if you would like to discuss specifics as to how best to prepare your business for an excess audit, we would be glad to discuss solutions with you.
Each month, Swarts Manning insurance experts cover relevant topics for your business. Stay tuned for more discussions about managing your insurance and industry-specific tips.
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