Premium audit

What is a premium audit?

Insurance companies routinely carry out a premium audit to review a business’s financial records and determine its actual risk exposure. They do this to ensure that the premium set at the beginning of your policy aligns with any changes in your business operations.

They usually conduct these audits at the end of each policy period or if someone cancels the policy.

Why do insurance companies conduct premium audits?

Insurance companies conduct premium audits for two basic reasons:

• To determine if your existing coverage is adequate for your business’s needs
• To ensure you’re paying the correct amount for proper coverage

A premium audit allows you and the insurer to assess your premium rate based on current needs and actual numbers.

For instance, if your estimations at the beginning of the policy period are lower than your actual numbers, you are underpaying for coverage that would be beneficial. Conversely, you could be overpaying for coverage if your company grew less than you thought it would.

What information is reviewed during a premium audit?

When it is time for your premium audit, your insurance company will notify you and your auditor will contact you to discuss how they’ll conduct your assessment. The auditor will provide a list of documents you need to submit for your review.

A premium auditor will typically review the following records and documentation:

• General information
• Certificate of insurance
• Description of company operations
• Officers’ or owners’ names and titles
• Employee names and job descriptions
• Number of employees at each location
• Names of subcontractors and certificates of insurance for subcontractors
• Payroll records
• Subcontractor info
• Tax documents
• Sales

How will a premium audit be conducted?

Several factors influence the approach used to audit your policy. These might include premium size, type of operation, and state mandates.

• Mail audit. An audit form will be mailed to you to complete.
• Telephone audit. You’ll receive a telephone call in which the phone auditor will explain and perform the audit. This interactive approach allows you to ask questions in real time and ensure you understand the process.
• Hybrid audit. This is a blend of mail and telephone audits. Your insurer will ask you to send verification documents. Once they review them, you’ll have a phone call to go over any findings. This audit adds a layer of security by having requested information in writing and facilitating conversation for any needed clarity.
• On-site audit. The auditor will set a time to meet and review all documentation on-site. While it might sound a bit intensive, this method ensures your questions are addressed immediately and offers complete access to your business’s information.

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