What is the purpose of a premium audit?

• A. To determine the insured's risk appetite.
• B. To set a fixed rate at inception.
• C. To apply discounts after the policy ends.
• D. A post-issue review of actual exposure units used to adjust estimated premium to a final amount.

Answer: (D)

Premium audits finalize the price by tying it to what actually happened during the policy period. After coverage ends, the insurer reviews the insured’s records to verify actual exposure units—such as payroll, sales, or units produced. Using these real figures, the estimated premium is adjusted to a final amount, which can be higher or lower than what was initially billed. This ensures the price accurately reflects the true risk faced, rather than the guess estimated at the start. It’s a post-issue process focused on accurate pricing rather than setting a fixed rate upfront or applying discounts after the fact, or assessing risk appetite.