Heightened focus on premium audit practices at U.S. P&C commercial lines carriers

A new study that received input from 38 property and casualty commercial lines carriers in the United States shows insurers are exploring how premium audit practices efficiency can help improve profitability, Ward Group reports.

Results showed a noticeable increase in executive level focus on premium audit practices over the past three years, notes a statement issued Thursday by Ward Group, a McLagan/Aon Hewitt company and provider of benchmarking and best practices research studies for the insurance industry. 

“Given the increase in direct premiums written in the commercial lines market, company leaders are looking more closely at the efficiency of their premium audit practices to find opportunity to improve profitability,” says Jeff Rieder, partner and head of Ward Group.

The study analyzed staffing for premium audit functions, as well as cost, frequency, type and resources used to conduct premium audits. Results include benchmarks segmented for workers’ compensation, multi-line commercial writers and by account size. 

Study participants reported an average of 1.7% net additional commercial lines premium identified as a result of the premium audit process in 2013, the Ward Group statement notes.

In addition, the study found almost half of participants plan to increase the number of physical audits conducted in 2014, and that the increased workload and staffing are the primary challenges faced by premium audit operations. 

Other study findings include the following:

• multi-line carriers were more likely to maintain or increase their reliance on vendors;
• mono-line workers’ compensation carriers in the study spend 80% more on premium audit than multi-line commercial carriers; 
• workers’ compensation carriers conduct 93% more audits and rely more heavily on physical audits; and
• large account carriers rely more heavily on physical audits at a cost that is 60% more than physical audits at smaller account carriers.