The Role of a Premium Auditor

Question 1

What is a premium audit?

Answer 1

A premium audit is a review of the insured’s operations and accounting records.

Question 2

What does a premium audit determine?

Answer 2

It determines actual exposure during an audit period for the coverages on the business policy.

Question 3

What coverages are there?

Answer 3

May include General Liability (GL), Workers’ Compensation (WC), Garage, Auto, etc.

Question 4

How are classifications assigned?

Answer 4

Classifications are assigned based on the operation(s) of the business.

Question 5

When are estimated premiums collected?

Answer 5

At the beginning of the policy year.

Question 6

When is the premium audit conducted and what is the purpose?

Answer 6

After the policy expires, it is then determined what the actual exposure is and then final premium adjustments can be made.

Question 7

What is the role of the premium auditor?

Answer 7

• Receive assignment to conduct a premium audit for named insured(s) on a policy.
• Determine the type of audit.
• Determine the audit period dates.
• Determine the basis for each classification and the required records.
• Conduct the audit according to industry standards and manual rules, along with the insurance company’s special instructions and/or requirements.
• Conduct the audit with the insured or their representative, including a thorough interview to determine actual operations of the business.

Question 8

What resources are used to complete an audit?

Answer 8

There are various tools and resources used such as a computer, auditing software, etc. Resources may include National Council on Compensation Insurance (NCCI), WC manual, Commercial GL manual, state specific manuals and Premium Audit Advisory Service (PAAS).

Question 9

What is the responsibility of the premium auditor?

Answer 9

• Obtain accurate exposures per classification (e.g., Payroll, Sales, Cost, etc.)
• Create a factual, accurate report that serves as a legal document that can stand up in a court of law. The report is considered complete when:
  > It has been written up, submitted to and passed review by the review department
  > The insurance company has been billed and received the final audit
  > The insurance company calculates their final premium and any necessary adjustments and calculations have been recorded in their books.
• Represent the insurance company in all dealings with the insured in a professional and positive manner.
• Ensure the relationship between the insured and their agent is not damaged.