Insurance is a game of risk. If a company takes on a client who is a walking disaster waiting to happen, they’ll probably lose money. If they take on a client who likely won’t ever file a claim, they’ll turn a profit.

This type of risk is determined by an audit, and most insurance companies run through a risk management audit checklist to make sure a client is paying the proper premium. If you’re accident prone, your premium increases. If you’re a safe bet, you’ll probably get a good deal.

If you’re not sure whether or not an insurance company is giving you the best premium, it’s important to run an internal audit. An internal audit checklist for an insurance company can help you determine a proper rate.

What Happens During an Insurance Audit?

Insurance compliance audit checklists vary based on the type of insurance coverage for which you’re looking. If you’re running a premium audit to determine your insurance premiums, you’re likely looking at general liability or workers' compensation policies.

If the audit is performed by your insurance company, and you meet certain criteria on their risk management audit checklist, you might receive a bill or a credit (in the case of the latter, you’ve just saved money on your insurance plan).

Types of Premium Audits

Your insurance company can run one of three types of audits: a physical audit, a mail audit and a preliminary audit. The preliminary audit happens at the beginning of your plan. A physical audit happens in your offices or where your records are held. The insurance agent will look through all your physical business records in person.

A mail audit is often completed to save insurance time. You’re required to mail in documents like tax returns and past claims. These both lead to a preliminary audit, which helps determine the price of your full plan. An insurance representative will review their insurance compliance audit checklist for a specific past amount of time to predict how much you’ll pay during your full policy term.

Internal Audit Checklist for an Insurance Company

An insurance auditor will likely request a few internal documents to conduct the audit. An insurance compliance audit checklist will likely require the following:

  • General Information This includes a description of what your company does. You'll include the names and duties of employees, owners and contractors along with proof of insurance for subcontractors and the number of employees at each location of your business.

  • Tax Documents, Sales Records, Federal ID Numbers This verifies any payroll information you have. You’ll need to include any W-2 and W-3 forms you have, any 941 or 940 forms and any income tax returns.

  • Payroll Records This is especially important for workers' compensation insurance adjusters. You’ll need information about how much you’re paying your employees and subcontractors, including commission, bonuses and vacation pay.  You’ll also need pretax 401(k) amounts and overtime pay in an itemized list.

  • Sales Insurance auditors need to get a grasp on how much your business is actually worth. You’ll need to include gross sales for any product you sell or work you complete. You’ll also need a profit and loss statement.

Other Items for a Risk Management Audit Checklist

An internal audit checklist for an insurance company varies based on the type of insurance you’re getting and the size of your business. For this reason, an auditor may need additional information. This could include the amount of years you’ve been in business and the scope of your operation.

It’s important to outline all locations in which you operate and each state or country. Insurance coverage requirements vary from state to state and nation to nation. You might also be required to note whether or not you rent or own your location and the terms of your business’s lease or the state of any equipment used by your workers. In other words, is your machinery owned or leased? Is it new or refurbished?