Insurance glossary · Workers’ comp and audits
exposure basis.
The exposure basis is what your premium is measured on, such as payroll, sales or the number of vehicles. Estimate it well at the start and the audit has fewer surprises.
What does exposure basis mean on an insurance policy?
It’s the measure the premium is built on. The insurer multiplies a rate by your exposure, like payroll, sales or vehicles, to get the premium. Change the exposure and the premium moves with it.
Which exposure bases are most common for contractors?
Payroll for workers’ comp, and often for general liability too. Sales or receipts for many general liability classes. The number and type of vehicles for commercial auto. Property values for buildings and equipment. Subcontracted costs can also be an exposure on general liability.
Why does the exposure estimate at the start of the policy matter?
Because the deposit premium is based on it, and the audit at the end of the year replaces it with what actually happened. A low estimate means a bill at audit; a high one means a refund, but more cash tied up during the year.
What if my payroll or sales change a lot during the year?
Tell your broker. The estimate can be updated mid-term so the premium tracks reality, which avoids a large bill at audit and keeps certificates and limits in line with a bigger business.
Why does my general liability policy charge for subcontractors?
Because work you subcontract can still lead to claims against you. Many contractor policies use the cost of subcontracted work as an exposure, usually at a lower rate when subs carry their own insurance and a higher one when they don’t.
Is a lower exposure always better?
For premium, yes, but only if it’s accurate. Underreporting exposure to lower the price just moves the cost to the audit, and can raise questions about the policy if it’s far off.
Does the exposure basis work differently by state?
The basis itself is set by the insurer’s rating rules for each coverage. Workers’ comp is the exception, where each state’s rating bureau sets the rules, including how overtime and some executive pay are counted. The class code and premium audit pages cover those differences.
by trade.
- General contractorsSubcontracted costs are often your biggest general liability exposure, and certificates from subs keep them at the lower rate.
- PlumbingPayroll and sales estimates that lag a growing shop are the most common reason for audit bills.
- HVACSeasonal payroll swings make a realistic annual estimate, and a mid-year update, worth the effort.
- Landscaping and property vendorsSeasonal crews and subcontracted work like tree removal can each be rated on a different exposure.
where you’ll see it.
- Policy declarations“Premium basis: payroll” or “gross sales” with an estimated amount for each class.
- ApplicationsQuestions about projected payroll, sales and subcontracted costs for the coming year.
- Audit statementsThe final exposure for each class compared with the estimate.
estimate it right the first time.
Riza works through realistic payroll, sales and subcontracting estimates with you at renewal, updates them when the business changes, and checks the audit against your records.
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Coverage it touches: Workers’ comp · General liability