Insurance premium audits are complex and have a layered history. Understanding the evolution of insurance premium audits sheds light on the challenges that these audits have faced, as well as what they will look like in the future.
Auditing is crucial when it comes to insurance premiums, as the only way to determine the actual premium is to do an audit. This is because insurance premiums are based on estimates. In the past, businesses would hire an insurance premium audit expert, who was an employee of the insurance carrier itself. Audits occur annually, usually upon expiration, although there may be mid-term audits 90 days after the policy expiration date.
In order to calculate insurance premiums, auditors used estimates of insurance exposure. Insurance exposure includes estimated payroll, business operations, and losses/mod. Other factors, such as auditor bias, actual premium bias, proper classifications, and rates that apply to the business, also influence the final premium.
Unfortunately, these types of audits were often inaccurate. Inaccurate estimates result in different outcomes. Estimates that are too low result in the company receiving a bill for the additional premium, whereas estimates that are too high result in the company receiving a refund.
Incorrectly estimating insurance needs is costly and has impacted many businesses. In fact, 25-50% of business owners with insurance policies may have been overcharged at some point during the auditing process. Additionally, incorrect insurance estimates also impact workers’ comp premium costs. The annual cost of workers’ comp premiums in the United States is between $55 and $60 billion. It is estimated that as much as 10-20% of these premiums are lost to premium leakage.
However, strides have been made to address these problems in insurance premium auditing. Nowadays, audits begin when an auditor contacts a company to assist with their insurance audits. This auditor conducts a virtual, phone, or email audit. In order to do so, auditors receive records of individuals who work for or are contracted by the company. They also look at records such as payroll, cash disbursements, tax records, cash receipts, and certificates of insurance.
Within each of these records, there are sub-records, adding to the complexity of the audit. For example, when it comes to payroll, auditors examine the journal and summary, as well as individual earning records. In terms of tax records, auditors consider income statement reports, gross sales, and corporate returns. Other specific records include monthly cash disbursement totals by account, subcontractor records, and workers’ comp.
Once this information is compiled, the carrier completes a final audit and issues a statement. The company only receives the report upon request. Once the result is complete, the company receives either a bill or a credit depending on the statement.
While it is important to be familiar with how auditing currently works, it is also vital to consider the path that auditing will take moving forward. Technology is altering the way in which insurance premium audits happen, marking another evolution in auditing history.
AI has a particularly strong influence on insurance premium auditing. For instance, AI can help auditors detect anomalies, predict premium trends and risks, improve evidence-based classification, uncover real-time business operation shifts, and boost data accuracy. It also increases flexibility through the implementation of video conferences, phone calls, auto paper mailings, and web-based portals. Its use of predictive analytics also reduces the likelihood of inaccuracies and excessive expenses.
One example of a company paving the way for improved insurance premium audits is AdvoQate. This company focuses on helping businesses save money during the auditing process. AdvoQates represents a wide variety of companies, no matter the size or industry. For example, AdvoQates is equipped to assist businesses in healthcare, retail, sports teams, and more. Unlike earlier insurance premium audits, AdvoQates’s auditors work for the business, not the insurance company, which tends to make the process easier on businesses.
There are several specific methods that AdvoQate uses to support its clients. It prioritizes clear communication and reduces the administrative burden, all while mitigating errors and overcharged premiums. The team gathers all of the important records, then analyzes these documents to identify areas where cost savings are possible. AdvoQate focuses on finding deductions and exemptions to make the insurance bill as accurate as possible. Finally, they compile all of the data into their auditing software, submit the details to the auditor, and confirm that the final statement aligns with the audit.
Insurance premium auditing has changed drastically over time. New options are everywhere, allowing businesses greater freedom in how they want to conduct their audit. Whether it be through a contracted auditor or through a service like AdvoQates, insurance premium audits require careful consideration on the part of the business. Now, there are more options that help businesses avoid excess costs, and AI continues to revolutionize the field, creating a fascinating and ever-changing future for insurance premium auditing.
