What is the main purpose of an insurance premium audit?

The main purpose of an insurance premium audit is to evaluate the correctness of the premium charged. This audit process is typically conducted after a policy period has concluded, and it focuses on ensuring that the premium accurately reflects the risk associated with the insured entity. For many types of insurance, particularly those related to commercial lines, premiums are often based on estimates of exposures like payroll, sales, or employee counts.

By conducting an audit, the insurer reviews these estimates against actual figures to confirm that the premium is appropriate. If the actual figures are less than the estimates, the insurer may owe a refund. Conversely, if the actual figures are greater, the insurer may request payment of an additional premium. This process helps maintain the fairness and accountability of the insurance system, ensuring that both the insurer and the policyholder are accurately reflecting the risk involved.