What should apartment owners expect during an insurance audit?
An insurance audit verifies the exposure data used to calculate your premium—primarily payroll for workers comp and revenue or square footage for liability—and can result in additional premium charges or refunds.
Insurance audits are a routine part of commercial insurance for apartment buildings, occurring annually after the policy period ends. The audit reconciles the estimated exposures used to set the initial premium against the actual exposures during the policy term. The two coverages most commonly audited are workers compensation and general liability.
For workers compensation, the auditor verifies actual payroll by employee classification code. Apartment building employees are typically classified under NCCI code 9015 (Buildings—Operation by Owner, Lessee, or Property Management Firm) or similar state-specific codes. The auditor examines W-2s, payroll registers, tax filings (IRS Form 941), and 1099s for subcontractors who may not have their own workers comp coverage. Uninsured subcontractors—such as independent maintenance workers or cleaning crews without their own policies—are added to the apartment owner's payroll for premium calculation purposes.
For general liability, the audit base is typically revenue (gross rental income), area (square footage), or number of units, depending on how the policy was rated. The auditor reviews rent rolls, financial statements, and lease agreements to verify the actual exposure. If rental income increased significantly during the policy term—due to rent increases, improved occupancy, or adding units—an additional premium charge results.
To prepare for an audit, apartment owners should maintain organized records of payroll by classification, certificates of insurance from all subcontractors, monthly rent rolls, and any changes in the number of units or property use during the policy year. Common audit disputes include misclassification of employees into higher-rated codes, inclusion of contractor payroll that should be excluded based on valid certificates of insurance, and overstatement of revenue by including non-rental income like security deposits.
If the audit results in an unexpected additional premium, the owner has the right to dispute the findings through the insurer's internal dispute process or through the applicable state audit dispute mechanism.
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Related Questions
What types of insurance does an apartment building owner need?
Apartment owners typically need commercial property, general liability, loss of rents, umbrella, and workers compensation coverage at minimum.
How much does apartment building insurance cost?
Apartment building insurance typically costs $500 to $3,000 per unit annually, depending on the property's size, location, age, and coverage needs.
What does general liability insurance cover for apartment buildings?
General liability covers bodily injury and property damage claims from third parties, such as a tenant or visitor injured in a common area.
What is a commercial umbrella policy and why do apartment owners need one?
A commercial umbrella policy provides additional liability limits above your general liability, auto, and employer's liability policies, protecting against catastrophic claims.
Does landlord insurance cover tenant injuries?
Yes, the general liability portion of a landlord's insurance covers tenant injury claims if the injury resulted from the owner's negligence or a property hazard.