Prepping for an Insurance Audit

Every filmmaker dreams of making a blockbuster, but few imagine the paperwork required for a production, including the documentation needed for an insurance audit. The good news, though, is that by preparing for your audit throughout your production, you’ll have a much more enjoyable process with it once your project has wrapped. 

Even though you’re using estimates at the start of your insurance coverage, your actuals at the end of it won’t be a surprise if you’re consistently and accurately tracking your costs and checking in with your insurance broker with any updates. 

This guide will give you the tools necessary to confidently tackle your next insurance audit. Before we dive in, though, here are some key points to remember when it comes to insurance audits. 

Audits are routine, not punitive

Audits are a standard part of every insurance company’s operations and aren’t meant to penalize you. Sometimes you even get money back! So they shouldn’t be a source of stress or anxiety.

When it comes to film production, audits are designed to ensure that the premium you paid aligns with the actual risks your productions faced. If your initial estimates when purchasing the production insurance plan were too low, you may have additional costs, which could go to legal collections if left unpaid. 

On the other hand, if you overestimated, you could be entitled to a refund. But even if you get a refund from your audit, knowing throughout your production the true costs of it means you could have been using those funds towards your project instead of getting it once it’s done. 

All to say, the best way to approach an insurance audit is to treat it as a routine step rather than something to fear and track your costs throughout production.

What types of insurance audits do productions undergo?

Every film production company should have two types of basic coverage: general liability and workers’ compensation. 

Here’s a quick recap to jog your memory.

General liability

General liability insurance is the backbone of production insurance, and you can’t insure your production without it. 

It includes a number of factors, such as:

• Cast and crew costs, wages, and/or salaries
• Location costs (including studio rentals)
• Equipment & property costs (both rented and purchased)
• Set construction and design costs
• Wardrobe costs
• Special effects costs
• Transportation costs
• Publicity costs

Keep in mind that your auto coverage and inland marine coverage (property and equipment) will also come up during a general liability audit because they all interrelate.

A general liability insurance audit investigates if your company’s coverage accurately reflects the risks and scale of your production operations. Auditors will review each production’s scope and risk profile to determine if the reported figures match the estimates. 

Be proactive in reporting any changes in production circumstances for a straightforward general liability insurance audit.

An important final note: Agencies, studios, and music labels typically have their own wrap-up GL coverage. Check if this is the case when working with one of these companies. As long as a COI is provided, additional general liability insurance isn’t needed.

Workers’ compensation

Workers’ compensation insurance covers the medical expenses and lost wages for any workers injured on set. 

The goal of a workers’ comp insurance audit is to verify that your premium amount aligns with the worker pay records and size of the workforce during the policy term. Auditors review worker pay records, tax documents, and more to determine if your coverage was appropriate. 

So if your worker size was smaller than anticipated, the insurance provider could reimburse you for any overpaid premiums. But even if you had more workers than initially reported and owe additional premium payments, consider that a good thing! Why, you ask? Because you had the funding for a bigger shoot and larger production—a good problem to have.

One last note to keep in mind regarding workers’ comp insurance rates: it varies according to state. As of this writing, California currently has the highest cost when it comes to workers’ comp rates, and here’s an example of why it’s so important to communicate with your insurance broker throughout the production process…

Let’s say you have 200k for worker pay costs. You earmark 150k for work performed in New York but decide that the remaining 50k will go towards work performed in California. Don’t assume you can use the New York rate for the entire 200k! You will have a different rate for that 50k, so again, keep your insurance broker informed of any production changes.

An important final note: Workers’ comp insurance is for individuals not already covered through other policies. For instance, if someone is already going through Wrapbook’s payroll as an employee or loan-out, additional coverage isn’t necessary. Or if an independent contractor has their own coverage, workers’ comp isn’t needed either—so long as they can provide a valid COI.

Audit results are based on the insured’s estimates

The outcome of an insurance audit directly correlates to the estimates provided when purchasing the policy. 

For a general liability audit, these estimates refer to physical production costs such as gross production costs, including how much you spend on vehicle rentals and how many workers were driving their own cars for production needs. 

For a workers’ comp audit, estimates are based on how much you paid to your workers, the nature of the work they performed, and in which state(s) that work was carried out.

Discrepancies for an audit usually arise due to errors in the initial estimates or final reporting. Improper documentation can have adverse consequences, so make sure to gather and review your documents for a smoother audit.

How to prepare for an insurance audit?

Preparing ahead is the key to a smooth insurance audit. It involves gathering all the necessary documentation and reviewing it carefully for accuracy. By proactively preparing, you can reduce the risk of miscommunication and avoid costly errors. 

Let's examine some of the documents typically required for insurance audits.

General liability insurance audit

To prepare for a general liability insurance audit, have the following documents at the ready:

• Worker lists: Provide cast and crew lists with job classifications for both full-time and part-time workers. 
• Worker pay records: Ensure that your records match the worker lists to avoid any inconsistencies during the audit. 
• Expense lists: Include breakdowns of the costs previously mentioned, such as location(s), equipment, property, set construction, set design, wardrobe, special effects, transportation, and publicity. 

Auditors will look for signs that indicate misreporting, so any potential red flags should be identified before the audit to prevent hiccups during the audit. 

Workers’ compensation insurance audit

Now, let’s look at some of the key documents required for the workers’ compensation insurance audit:

• Worker pay records: Include records for both full-time and part-time workers during the policy’s term. 
• Independent contractor 1099s: Ensure independent contractors’ pay records are properly categorized and presented in a straightforward manner. 
• Tax records: You must have all the tax documentation needed to verify worker pay records.

Typically, the finance team or production accountant compiles these documents in preparation for the audit. With this paperwork in order, filmmakers can confidently navigate their insurance audits.

Lastly, each insurance company may have its own unique reporting standards, so be sure to review your contract for the required documentation.

Tips for avoiding surprises during an audit

Audits can feel overwhelming, but they don’t have to be!

The key to minimizing stress is understanding what the auditors are looking for and preparing accordingly. Here are some tips to help you streamline the process.

Know the reporting requirements

The ideal first step is to get familiar with the questions or documents the auditor may ask for. Understanding their mandate can help guide your preparation and allow you to gather the necessary documents ahead of time. Again, this ties back to recording and saving those documents throughout the course of your production, not once it’s wrapped.

Filmmakers should also not be afraid to ask for clarification if they need additional details. Having an open line of communication with your broker eliminates any last-minute scrambling and reduces the possibility of errors.

Create an audit checklist

Once you fully understand the reporting requirements, create an audit checklist!

This is one of the best ways to stay organized while preparing for an insurance audit. Here are some of the documents you might be expected to supply: 

• Worker list with job classifications
• Worker pay records for all employees and contractors
• Independent contractor 1099s
• Tax records
• Expense lists
• Additional production information

With a comprehensive checklist, you can verify that everything is in order before the audit begins and avoid any unwanted surprises. 

Double-check your records for accuracy

A vital step during the preparation phase is to review all your records for accuracy. 

Even a small mistake can result in delays and additional costs, so make sure that there are no gaps in the records. It’s equally important to identify and eliminate any instances of misrepresentation of data, even if it happened unintentionally. Pay particular attention to documents related to independent contractors because auditors are looking for misclassifications. 

It’s equally important to identify and eliminate any instances of data misrepresentation, even if it happened unintentionally. 

The goal of this process should be to certify that your records match the initial estimates provided to the insurance provider. 

Maintain your audit docs in a single, accessible storage space

An insurance audit requires worker pay records for a whole year, which is a lot of paperwork to keep track of. 

So, make sure you have all your documents in a single, accessible storage space. Production finance software, like Wrapbook, is the perfect data storage solution for production companies. Our platform can provide detailed audit logs that allow you to quickly resolve disputes and complete audits. With Wrapbook’s real-time insights, you are guaranteed to save time and money while reducing errors. 

Wrapping up

Insurance audits may seem daunting, but with the right approach, you can ensure a stress-free experience. Keep up-to-date records and communicate with your insurance broker to prep thoroughly. Proper preparation is the key to a smooth audit, so give it the time it deserves. 

‍Watch our demo to learn how Wrapbook can be a force multiplier for your production finance workflow. For more details, give our Essential Guide to Film Production Insurance a read!