What is Premium Audit?
A premium audit is a process conducted by insurance companies to verify that the premium paid by a policyholder accurately reflects their level of risk and business operations over the course of a policy period. It is commonly used in business insurance policies, including general liability, workers’ compensation, and commercial auto insurance, where the final premium depends on factors like payroll, revenue, or other business metrics.
During a premium audit, the insurance company reviews financial records, such as payroll and sales figures, to determine whether the estimates provided at the start of the policy accurately represent the insured’s exposure to risk. If the exposure differs from the original estimate, the insurance company may adjust the premium, resulting in an additional payment or a refund for the policyholder.
Premium audits ensure businesses are not overpaying or underpaying for their insurance coverage. Accurate audits help insurance companies maintain fair pricing and help policyholders ensure their coverage reflects their true level of risk.
For example, if a business hires more employees than anticipated, the increased payroll would raise the company’s liability and workers’ compensation exposure. A premium audit would capture this change and adjust the premium accordingly.