What is the purpose of a deposit premium audit?

The purpose of a deposit premium audit is to review the insured's books for premium adequacy. This process involves examining the financial records of the insured to determine whether the initial premium paid was appropriate based on the actual level of risk during the policy term. Since many insurance policies, particularly those related to businesses, are based on estimated figures (like payroll or sales), the audit allows insurers to compare these estimates to actual figures. By conducting this audit, insurers can ensure that the premiums collected reflect the correct level of coverage needed, which is essential for maintaining the balance of the insurance pool and ensuring that all insured parties are adequately covered.