Simplifying the Audit Process Discussion with Insureds

Simplifying the Audit Process
Discussion with Insureds
Picture this scenario – you just received a call from your client stating that a premium
auditor contacted them looking to schedule a visit to perform a premium audit on their
recently expired workers’ compensation policy.
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
•helpful tips you can share with your clients to help ensure a smoother audit experience
Insurance Audit Process – The Basics
An insured’s 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 the insured’s final policy premium is proportionate to the actual
exposures realized throughout the term of their policy.
At the end of the insured’s policy term, an audit professional will contact them to
perform a review of their 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 their deposit premium.
Helpful Tips for a Better Insurance Audit Process
To help assist your discussion with the insured for simplifying the audit process, we
offer the following tips:
1. Be prepared. The auditor will need access to the insured’s 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 their operations. Instruct the insured
to compile the applicable financial records and put together a complete and
organized audit file prior to the visit. Have all information accessible and readily
2. Designate a knowledgeable staff member to work with the auditor. Inform the
insured to 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 insured’s audit contact is knowledgeable on
the specific job duties of employees and that contact is able to assist the auditor
with any questions.
3. Encourage the insured to ask questions during the audit.Suggest to insureds that
they ask the auditor to clarify anything they do not understand.
4. Counsel the insured to conduct a final review with the auditor.At the conclusion
of the audit, the insured should review the auditor’s findings. This is also known as
the exit interview, and the insured’s representative and the auditor should recap
the audit results to ensure that they are accurate.
The Importance of an 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.
So the next time an insured calls with questions about the premium audit process,
you can advise them that being prepared, having records readily available,
designating the appropriate audit contact, and working closely with the auditor can
help avoid some of the common mistakes and pitfalls that can result in an inefficient
or ineffective audit experience.
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