What is an Insurance Premium Audit?
The Importance of an Insurance Audit
The premium audit is a very important function. Not only does it determine the final premium for an insurance policy, but the data collected at audit (payrolls, class codes and claims data) is later submitted to rating organizations (NCCI and independent bureaus) to be used in developing experience modifiers and loss costs. It is paramount that the premium audit is accurate, verified, and in compliance with mandated rules and regulations.
What is an Audit for Insurance?
In this article, we’ll discuss the following:
What a premium audit is and why it is necessary
The impact a premium audit can have on an insured
How the insurance audit process works
How the Insurance Audit Process Works
A policy is issued based on estimated exposures. These are typically payrolls and classifications. The advance or deposit premium is calculated based on these estimated and projected exposures. The final premium is determined, through the premium audit, after a policy ends by using the actual, not the estimated, exposures to make sure that your final policy premium is proportionate to the actual exposures realized throughout the term of your policy.
At the end of the policy’s term, an audit professional will contact you to perform a review of your operations, records and books of account. Based on the outcome of the premium audit, an adjustment may be made resulting in either an increase or decrease to your deposit premium.
Helpful Tips for a Better Insurance Premium Audit Process
Be prepared. The auditor will need access to your records, and depending on the type of coverage being audited, these records may include: payroll reports, overtime earnings, 941s, state unemployment reports, general ledgers and certificates of insurance if they sublet any of your operations. Compile the applicable financial records and put together a complete and organized audit file prior to the visit. Have all information accessible and readily available.
Designate a knowledgeable staff member to work with the auditor. Choose a representative of the company who is familiar with the financial records and the daily operations of the business. For example, workers’ compensation policies are based on designating employees to their proper classification. It is imperative that the your audit contact is knowledgeable on the specific job duties of employees and that contact is able to assist the auditor with any questions.
Ask questions during the audit. Ask the auditor to clarify anything you do not understand.
Conduct a final review with the auditor. At the conclusion of the audit, you should review the auditor’s findings. This is also known as the exit interview, and the designated representative and the auditor should recap the audit results to ensure that they are accurate.
Dan Zeiler
dan@zeiler.com
877-597-5900 x134