What does "premium audit" involve in the insurance industry?

The concept of a "premium audit" in the insurance industry refers specifically to a review process where an insurer verifies the premium charged based on the actual risk exposure and business operations. This is crucial for ensuring that the premiums charged are reflective of the true risks associated with a policyholder's operations.

During a premium audit, the insurance company examines various factors such as payroll figures, number of employees, sales volumes, or other relevant metrics that can affect the risk and thus the premium. This helps to ensure that the premium is accurately aligned with the specific circumstances and exposures of the insured. It may occur at the end of a policy term or during the term and can result in either a refund of excess premiums paid if the risk is lower than anticipated or an additional charge if the risk has increased.

Understanding this process is important for both insurers and insureds, as it helps maintain fairness in premium pricing and ensures that businesses are not overpaying or underpaying for their coverage based on their actual risk profile.