What are premium audits used for?

Premium audits are conducted primarily to assess the actual exposure of a policyholder and subsequently adjust premiums accordingly. This process is essential for insurance companies to ensure that they are charging the appropriate amount based on the insured's actual risk exposure instead of relying solely on estimated figures provided at the inception of the policy.

During a premium audit, underwriters review the insured's operations, payroll, and other relevant factors that can influence risk, allowing the insurer to adjust the premium to reflect the current situation of the policyholder. This is particularly important in industries where businesses may scale operations up or down, resulting in changes to their overall risk profile and, hence, the premiums they should pay.

The focus on adjusting premiums based on actual exposure ensures that both the insurer and the insured have a fair agreement that accurately reflects the insured risks.