Topic 10: Premium Auditing
Contributions to other functions- underwriting
- accurate classification of the exposure - identify inadequate exposure estimates - identify new exposures - general underwriting information regarding desirability of account
Important of accurate premium audits- for insurance rates
- accurate classifications - measurement of exposure unit bases
Importance of accurate premium audits- for the insured
- accurate premium - accurate experience modification
Premium auditor examines insured's records to determine ________ ________, and may submit a report so
- actual exposure - a final premium adjustment on the expired policy may be completed
5. auditing books and records
- appropriate classification - premium base: area, gross receipts, payroll, etc.
Source document for audit
- at least 2 verifiable sources of supporting information
Possible sources of supporting information
- books or original entry, general edgers, time sheets - cancelled checks, bank statements - federal tax returns - job descriptions - certificates of insurance for subcontractors - written employment contracts - brochures, promotional items, websites describing operations
Reasons for premium auditing
- determine correct premiums - collect ratemaking data - meet regulatory requirements in some states - deters and detects fraud - reinforce confidence of insureds - obtain additional information
Polices are issued based on ________ ________, and insured is charged a ________ _________.
- estimate premiums - deposit premiums
Importance of accurate premium audits- for the insurer
- financial position - customer retention - goodwill - efficiency - collections
Contribution to other functions- risk control
- source of information for risk control
Contribution to other functions- marketing and sales
- timely audits and goodwill help retention of account - identify gaps in coverages - communicate customer service issue
Contributions to other functions
- underwriting - marketing/sales - claims - risk control
Contribution to other functions- claims
- verification of classifications - verification of employees and employment dates and wages - values of inventories and equipment
Stages of premium audit process
1. planning 2. review operations 3. determine employment relationships 4. finding and evaluating books and records 5. auditing the books and records 6. analyzing a verifying premium-related data 7. reporting the findings
Premium auditing is used with policies with
fluctuating exposures --WC policies --general liability policies --commercial auto policies
Premium auditiing
methodical examination of a policyholder's operations, records, and books of account to determine the actual exposure units and premium for insurance coverages already provided
