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.
To help assist your discussion with the insured for simplifying the audit process, we offer the following tips:
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.