Keys to an Underwriting Audit
Auditing provides check and balances to existing client procedures and practices. Carriers, Self- Insured entities, insured’s, TPA's, agents, cedent’s, etc. seek independent reviews on their company’s performance for various reasons. Areas audited include: claims internal compliance, reinsurance exposures, due diligence, underwriting and renewal assistance, commutations, etc. There are several key areas in auditing which identify policy and contract compliance, loss control, emerging trends based on your data resources, which may be impacting your company’s bottom line. An on-site audit is the best tool for assessing the success of the organization’s strengths and weaknesses.
Forms and Rates
For each line of business underwritten the auditor reviews and determines the source of the forms and endorsements (ISO, NCCI, other rating organizations, or company devised manuscript forms).
Loss costs are provided by advisory agencies, the adoption of “me too” filings by other companies or developed in-house by the company’s own staff actuaries. Any or all of these methods may be utilized and supplemented by applying the company’s proprietary expense and profit loadings.
- Determine the number and types of policies to review.
- Learn the kind of business insured and quantify the business spread.
- Prepare Limits and Premium Profiles based upon the risks reviewed.
- Evaluate the risk pricing by considering:
a. Deviations – Filed or adopted deviations from others.
b. Package Modification – ISO Package modifications or company specific?
c. Individual risk premium modifications (IRPMs/ Schedule Rating)
d. Experience rating – Were any policies eligible? If so, what plan (ISO or other) is used and was it properly applied?
e. Expense reduction plans.
f. Other rating modification(s) e.g. tort reform credits.
Technical Underwriting Performance:
-Underwriting authority and any violations or referrals
-Applications. In file, fully and accurately completed
-Underwriting worksheets
-Inspections (including loss control, financials, motor vehicle reports). Who performs, how long does
it take and what was the quality? Were they reviewed, initialed and dated by an underwriter
-Recommendations- Action taken on poor identified indicators/drivers? Were they communicated
fully and in a timely fashion? If waived, were company procedures followed and waivers
documented? Were they followed up and documented by re-inspection
-Policy Forms and endorsements. Properly constructed? Were the correct forms and endorsements
used
-Risk classifications. Were they properly classified based on file evidence
-Rate base. Based on file evidence was the correct base (insured value, payroll, sales, area, sales
etc.) used
-Property insurance to value
-Property line sheets
-Property accumulations. mapping
-Reinsurance- Secured as required by the company
-Casualty Premium Audits- Performed according to company guidelines
Declined File Review:
Number and type of declinations reviewed? Why and how handled with its producers?
Conclusion and Recommendations:
-Wrap up meeting held?
-Specific positive and negative aspects of the review.
-Overall evaluation of the company’s underwriting process.
Audit recommendation(s).
Conclusions and Recommendations