Most businesses will purchase insurance to protect themselves from various risks. Some types are required, including worker’s compensation for employees and general liability insurance, while others are specific to industries or geographical location. Insurance premium audits are another important piece of the puzzle. They are necessary in order to make sure businesses are paying the correct amount for their insurance policies. These audits will assess to see if premiums are accurately reflecting the risk level of the company and to ensure it is not being overcharged. Hiring a dedicated insurance premium auditor is essential to making sure this process is completed as accurately as possible, as premiums typically rely on estimates.
Premiums are calculated based on the business’ level of risk exposure. Inputs include estimated payroll, business operations, and loss divided by mod. The final premium is also subject to auditor bias, actual premium basis, proper classifications, and rates that apply to the business. Despite this comprehensive process, estimates can still be inaccurate. There can be different repercussions based on the outcome of the estimate. If the estimate is too low, a company will receive a bill for the additional premium that is owed. If the estimate is too high, the company will receive a refund, usually in the form of a policy check refund. An estimate is determined to be inaccurate during the audit process, which typically occurs on an annual basis, right after the premiums expire. Additionally, there are mid-term audits 90 days after expiration as well.
It is still relatively common for an estimate to be too high. 25% to 50% of business owners with insurance policies have discovered that they have been overcharged at some point in their business’ history during the audit process. Annual worker’s compensation premium cost amounts to $55 – $60 billion in the United States, but 10-20% of these premiums are lost to leakage. Given that there is so much lost to artificially high premium estimates, it is imperative to have a rigorous auditing process.
The most common method for insurance premium auditing involves an auditor who works for the insurance company reaching out to the company. They will usually conduct an online audit either on a virtual call, by phone, or by email. These auditors will closely review records of who works for or is contracted by the insurance company. Record sources include a review of the payroll, including individual earning records, cash disbursements and their monthly totals by account, state and federal tax records, and cash receipts. After document reviews, the carriers complete a final audit and issue a final statement. A report is only sent if the company requests it. Based on the audit results, a company will either be sent a bill if they are undercharged or a credit if they have paid too much.
This process is modernizing in the age of AI. AI is now being used to help auditors ensure a process that is as accurate as possible. They are able to help detect anomalies, predict premium trends, impacts, and risks, and improve evidence-based classification. They can also uncover real-time business operations shifts and boost accuracy and reliability in the overall auditing process. Some versions of AI are able to support flexible communication between auditors and company representatives, including through video conferences, auto paper mail, and web-based portals. Some predictive analytics features are also able to reduce the likelihood of inaccuracies in the auditing process, which can help circumvent some expensive surprises.
An expert team of auditors, not just those merely supplied by the insurance company, can be very helpful to make sure the audit is completed as accurately as possible. They are able to be the point of contact with the insurance company’s auditors, which can help to ensure clear communication and reduce administrative burdens for the company. They can also hold the insurance company’s auditors to a high standard and make sure they are not making errors that would result in overcharged premiums. External expert auditors can also help gather the necessary documents and analyze them to make sure there are opportunities for cost savings. They can complete their own audit to make sure that the outcomes match and any potential discrepancies are addressed.
For any successful company, insurance is a necessity. However, in order to make sure overcharged insurance premiums aren’t a drain on the company’s pockets, it is important to hire a thorough and experienced audit team. That way, they can guarantee a company never pays more than what they actually owe.
