Academic journal article Journal of Risk and Insurance

Principles of Premium Auditing

Academic journal article Journal of Risk and Insurance

Principles of Premium Auditing

Article excerpt

Principles of Premium Auditing (2 Volumes), Third Edition, by Everett D. Randall (Insurance Institute of America, 1995).

A familiar quotation warns users of statistics that "every one of these figures comes in the first instance from the village watchman, who just puts down what he damn well pleases."' Insurance research owes a debt to premium auditors, who keep a vigilant eye on information submitted by modern-day "village watchmen." This role places the premium auditor at the cutting edge of issues involving coverage, classification, and fraud.

These two volumes are the textbook for the first course in the Associate in Premium Accounting program, jointly sponsored by the American Institute for Chartered Property Casualty Underwriters and the Insurance Institute of America. Prospective premium auditors have their work cut out for them, as the volumes cover a dizzying range of topics.

Premium auditors are most commonly associated with workers' compensation and general liability insurance. Unsurprisingly, much of the text appears to have been written with these forms of coverage in mind. The text also includes scattered references to other coverages, such as product and owned automobile exposures. Where appropriate, the author describes how laws differ between states.

The book uses a variety of devices that help it work well as a textbook. Frequent fly-outs in the margins provide bullets tracking the main points covered. As someone working in the field of workers' compensation, I found the most valuable aspect of the two volumes to be the author's frequent presentation of model documents, cards, and checklists. In one chapter ("Planning Premium Audits"), I counted seven such examples. The author's attention to detail and emphasis on organization provide a demanding standard for audit practice.

Premium auditing as a formal course of study dates only to the mid-1970s. Consequently, much of the material has been borrowed from other fields. The textbook includes chapters on insurance operations, underwriting, insurance law and the law of contracts, automation, and business communications. A more adequate treatment of many of these topics can be found elsewhere. One sympathizes with anyone trying to keep pace with technical change, but the chapter on automation seems particularly dated. …

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