Insurance Cost: Understanding Premium Audits

There is a process involved in determining insurance cost. There is also a process after a policy period expires to ensure that the policy premium was accurate – this is a premium audit, which is designed to guarantee that business owners only pay the premium they truly owe rather than a premium based on the estimated figures provided when their insurance policy was issued. The following information will help to explain the importance of the premium audit process.

Premium Audit Process

Think back to the workers compensation policy example. After the policy period expires, premium auditors review the business’ books to determine the actual payroll for that period. (You will recall that the exposure base for workers compensation policy premium is payroll.) Businesses that had a good year – higher actual payroll than estimated payroll – receive a bill for additional premium; those with lower actual payroll receive a refund.

Premium audits are also conducted on general liability policies, garage liability policies and liquor liability policies. The exposure base for these policies may be sales, payroll, subcontractor costs, gallons, or other measures of fluctuating exposure bases.

Small businesses complete an online audit form which is reviewed by internal audit staff and classification codes are assigned to the provided exposures.

Larger audits are conducted by field premium auditors who go to the business location to review the books and operations in person.

Why are Premium Audits Important?

Premium audits can provide valuable information about your business operations. In addition to determining the correct premium for a policy, Society’s experienced premium auditors also:

  • Verify that correct classification codes are assigned to claims
  • Collect ratemaking data to assist with determining future insurance pricing
  • Obtain additional underwriting information to evaluate risk and exposures
  • Help deter and detect fraud by reporting suspicious items

Finally, field audits provide an opportunity to establish mutually beneficial relationships with policyholders. Good impressions and friendly rapport go a long way. Premium audits allow business owners the opportunity to ask questions and develop a better understanding for insurance premium calculations.

More Premium Audit Resources:

The audit process is designed as a service that guarantees you only pay the insurance premium that you owe. Get in touch with your local independent agent for answers to all your Society audit questions.

Author

Laurie has 20 years of premium audit experience, including 10 years as a premium auditor for Society Insurance. She holds the Associate of Premium Audit (APA) designation and the Chartered Property Casualty Underwriter (CPCU) designation.

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