What is a 'premium audit'?

What is a 'premium audit'?

• A. A process to determine how to market premiums
• B. A review process to determine the actual premium owed based on the insured's exposure
• C. An audit performed on the insurance company by regulators
• D. A check on the financial status of the insured

Answer: (B)

A premium audit is primarily a review process conducted to assess the actual premium owed by an insured based on their specific exposure. This evaluation is crucial because the premium for certain types of insurance, such as workers' compensation or liability insurance, is often based on factors like payroll or sales, which can fluctuate throughout the policy period. By conducting a premium audit, the insurer can ensure that the premium accurately reflects the level of risk and coverage provided to the insured. Through this process, both the insurer and the insured can verify that the premiums charged are appropriate and fair, correcting any discrepancies that may have arisen during the policy period. It helps promote transparency and aligns the policyholder's premium to the actual risk they present, ensuring that they are neither overcharged nor undercharged.

A premium audit is primarily a review process conducted to assess the actual premium owed by an insured based on their specific exposure. This evaluation is crucial because the premium for certain types of insurance, such as workers' compensation or liability insurance, is often based on factors like payroll or sales, which can fluctuate throughout the policy period. By conducting a premium audit, the insurer can ensure that the premium accurately reflects the level of risk and coverage provided to the insured.

Through this process, both the insurer and the insured can verify that the premiums charged are appropriate and fair, correcting any discrepancies that may have arisen during the policy period. It helps promote transparency and aligns the policyholder's premium to the actual risk they present, ensuring that they are neither overcharged nor undercharged.