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Is it the common practice of Surplus Lines company not to return premium at audit if the audit develops premium less than the estimated annual? They will charge additional but not return premium.

Yes. The policy probably stated "Minimum and Deposit" which means exactly what you just stated. The company will charge "x" amount, but not go less that the "x" amount stated on the declarations page.

Yes that's the way it goes. From my experience only admitted carriers return premium.

Hi Dan, While it hardly seems fair to do things that way, it is not all that uncommon of a practice. Surplus carriers are not regulated in the same way as Admitted carriers and can pretty much play by their own rules to a point. This is a good question to ask whatever wholesaler that you intend to use, if it is the practice of their carriers to not give back any premiums at audit. A little research can save you a lot of grief later.

Pretty standard. 100% minimum and deposit. Its a safeguard to keep insureds from grossly overestimating their receipts or payroll to receive a lower rate, and then reporting much less at audit and collecting return premium. Example: Insured estimates they will do $5mm gross receipts so they receive a rate substantially lower than if they had estimated say $1mm. So they inflate it to lower the rate then get all the premium back at audit. 100% min and deposit stops this from happening.

Hey, Dan. In my neck of the woods (NJ/NY), this is very common, if not standard, practice on all construction accounts. However, when this is done, the policy usually has a minimum earned premium (MEP) endorsement on it. The purpose of the MEP is to be able to do exactly as you stated- if the audit develops less premium than initially estimated, no premium is returned. I believe that the carriers use it as a tool to protect against severe under-estimating of payrolls/sub costs, or mid-term cancellations of a policy for a contractor that might go out of business. They don't want to have to chase premium after the fact.

Yes it is very standard, normally the audit is adjustable upwards only and it states it on the quote and in the policy language. I try to negotiate with my carriers to do a 90% Minimum since it is surplus lines they can easily add it into the policy, you just have to know and ask for it for your client. I haven't had too many not willing to do it, unless the premium was too low to begin with. Then at least they might get some premium back but still not much. Also, some policies even had a clause they upon mid term cancellation they must do an audit or they can do an estimated audit at 25% above original receipts and bill for it. So just be careful and read the quotes and endorsements along with asking for policy specimen so that you know exactly what the carrier plans to do at audit. Hope that helps!

Yes, Very standard. Here is a sample one I found on the internet: https://www.facworld.com/User%5Cgenstarforms.nsf/doc/GSI-04-C129/$File/GSI-04-C129.pdf As Amber said, you might be able to negotiate a lower percentage (Less than 100 to say 90%). Either that or have the insured use a more conservative estimate, but know they will have to pay an audit premium if they understate the premium basis. I have even seen carriers require an audit letter be signed by the insured, stating they know the policy is auditable, they know the premium basis the policy deposit is based on, the rate it is multiplied against and that they commit to paying any audit premium.

Back in the 90's I had a demolition contractor at a $45,000 minimum and deposit premium and they ended up only doing a third of the work they expected. Premium at audit came to $15,000 and audit was closed even. This never makes an insured happy! Only thing the agent could have done is come back early in the policy when the "contract they were expecting" fell through and attempt to get the carrier to negotiate downward. Not saying they will, but it is worth a try.

Keep in mind that the minimum, MAY BE the MINIMUM the carrier is willing to write an account at. So say they are imploding a building (demolition), the carrier may say the minimum they will write the account at is $25,000 (Even if their payroll or premium basis less than that)

Always read the policy and ask questions about anything you don't understand or the insured doesn't understand