Audit on Policy

 An audit on a General Liability policy involves a thorough examination of the policyholder's records to ensure that the insurance coverage accurately reflects the level of risk exposure and the premiums paid. This audit process is typically conducted by the insurance company or a third-party auditor to verify the policyholder's information and determine if any adjustments are needed. Here's an overview of what's typically involved in a General Liability policy audit: Policy Information Review: The auditor will start by reviewing the policyholder's insurance policy and the terms and conditions of the coverage. They will verify the policy details, such as the policy period, coverage limits, exclusions, and endorsements.

Business Activities Assessment: The auditor will assess the insured's business operations and activities to ensure that the correct classification codes are assigned. Different industries and business activities may have varying levels of risk, which affects the premium calculations.

Payroll Records Examination: For businesses with a premium based on payroll, the auditor will review payroll records to determine if the number of employees and their job classifications aligns with the policy declarations. Misclassifications or underreported payroll could result in premium adjustments.

Sales and Receipts Verification: If the General Liability premium is based on sales or receipts, the auditor will examine financial records to verify the accuracy of reported figures.

Certificates of Insurance Verification: If the policyholder has subcontractors or vendors, the auditor may request certificates of insurance to ensure that adequate coverage is in place and that the policyholder is not unknowingly exposed to additional risks.

Additional Insured Status: The auditor will check if any entities or individuals have been added as additional insureds on the policy and confirm that these endorsements are correctly applied. Coverage Gaps and Limit Adequacy: The auditor will look for potential coverage gaps and assess whether the policy's limits are sufficient to protect the policyholder adequately.

Endorsements and Changes: The auditor will check for any mid-term changes or endorsements that might have been added to the policy during the coverage period and verify their accuracy.

Premium Calculation Accuracy: The auditor will review the premium calculations to ensure that they align with the policy terms, business activities, and other relevant factors.

Report and Adjustments: After completing the audit, the auditor will provide a report outlining any discrepancies or adjustments needed. If the audit results in additional premium owed, the policyholder will receive a billing notice, and if there's a surplus premium, a refund will be issued.

It's essential for policyholders to cooperate fully during the audit process to ensure accurate and fair premium assessments. Failure to cooperate or providing inaccurate information may lead to policy cancellations or other penalties.

Example : Audit can be performed in two cases

1) On Expired policy we can perform Audit

2) On a cancelled policy we can perform Audit

Types of Audit:

1) Final Audit

2) Final Audit Revise

3) Final Audit Reversal

For example on a policy you performed Final Audit & Audit premium generated as $500

Now you want to Reverse it. We can do reversal on same policy by performing Final Audit Reversal. Where $500 will be negated again.

Example for Final Audit Revise: On a policy you performed Final Audit & Audit premium generated as $500. Now you want to Revise it. Perform Final Audit Revise & change exposure or add new location. So that Revise can generate more premium which is positive or negative depending on the changes made by the Insured.