What is the primary purpose of a premium audit?

The primary purpose of a premium audit is to reconcile estimated premiums with actual exposures. This process is essential in ensuring that insurance premiums accurately reflect the risk that the insured poses based on their actual business operations. During a premium audit, an insurance company reviews the insured's financial records and operational data to confirm that the initial premium was based on accurate estimates of payroll, sales, or other relevant measures of risk exposure.

This reconciliation is vital for both the insurer and the insured. For the insurer, it helps maintain the integrity of the pricing structure and ensures that they receive the proper amount based on their risk portfolio. For the insured, it can result in adjustments to premiums, potentially leading to refunds or additional charges based on the audited figures.

In contrast, establishing a new insurance policy, assessing the financial viability of the insurer, and determining the insured's claims history serve different purposes within the insurance process. While these activities are important, they do not directly relate to the primary aim of conducting a premium audit, which centers on aligning premiums with actual risk exposure.