What is premium audit and why might it occur after the policy period?

• A. A premium audit reviews actual exposure and losses to adjust the premium to the true level, common for commercial policies.
• B. A premium audit determines the policy renewal date.
• C. A premium audit assesses the risk of weather events.
• D. A premium audit is a customer satisfaction survey.

Answer: (A)

A premium audit is the process of reviewing the actual exposure and losses from a policy period and adjusting the premium to match the true level of risk. This matters especially for commercial policies because upfront premiums are often estimated based on expected factors like payroll, sales, or units of exposure. After the policy period ends, the insurer uses real numbers—actual payroll, revenue, or other exposure data—to calculate the final premium. If the actual exposure is higher than estimated, you may owe more; if it’s lower, you might receive a refund or credit. The audit happens after the period because you need those actual figures to determine the precise premium. It’s not about renewing dates, weather risk, or customer satisfaction.