March 23, 2023
Audit noncompliance can lead to cancellation of current policy
You may be wondering why you received a notice of cancellation on a current policy indicating a reason of “audit noncompliance.” This notice means that the policyholder failed to complete the premium audit for the prior term.
SFM sends out two mailed notices instructing the policyholder to complete the required annual premium audit. Both the policyholder and the agent receive these communications. If the policyholder does not respond by completing the audit by the specified deadline, this is considered audit noncompliance.
Once a policy becomes noncompliant, SFM sends out a notice of cancellation to both to the policyholder and the agent, specifying the number of remaining days before the current term policy will be canceled. This timeline is determined by state rules (ranging from 30-60 days). To avoid final cancellation, the policyholder would then need to complete the prior term premium audit within the specified time range.
If the policyholder does not comply and complete the premium audit by the specified deadline, the current term policy will be final canceled, and both the policyholder and agent will receive a copy of this cancellation notice.
Contact the underwriter to reinstate a policy canceled for audit noncompliance
When a policy goes into cancellation, even if the insured completes the prior term audit, the policy may remain canceled unless the agent contacts the underwriter.
If the premium audit is completed within the first cancellation notice timeframe (30-60 days, depending on the state), the policy will be automatically reinstated. In these cases, no further action is required from the policyholder or agent.
However, if a policy final cancels due to audit noncompliance, the policyholder should complete the premium audit right away and the agent will need to contact the underwriter to consider reinstating the policy.
