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🔎 '''Insurance audit''' encompasses the systematic examination of an insurer's financial records, [[Definition:Underwriting | underwriting]] practices, [[Definition:Loss reserves | reserve]] adequacy, [[Definition:Claims management | claims handling]] procedures, and regulatory compliance — conducted by internal audit teams, external auditors, or regulatory examiners to verify that the organization operates with financial integrity and within the boundaries of applicable law. Unlike a general corporate audit, an insurance audit must grapple with the unique challenge that an insurer's largest liability — its obligation to pay future [[Definition:Insurance claim | claims]] — is an estimate rather than a known quantity, making the audit of [[Definition:Technical provisions | technical provisions]] and [[Definition:Actuarial assumptions | actuarial assumptions]] a central and technically demanding component of the engagement.

⚙️ Several distinct types of insurance audit exist, each serving a different purpose. External financial audits, typically performed by one of the [[Definition:Big Four (accounting firms) | Big Four]] or another major accounting firm, assess whether the insurer's financial statements fairly represent its position under the applicable accounting framework — whether [[Definition:US GAAP | US GAAP]], [[Definition:IFRS 17 | IFRS 17]], or local [[Definition:Statutory accounting | statutory accounting]] standards. Regulatory examinations, conducted by bodies such as state insurance departments in the United States (coordinated through the [[Definition:National Association of Insurance Commissioners (NAIC) | NAIC]]) or the Prudential Regulation Authority in the UK, focus on [[Definition:Solvency | solvency]], policyholder protection, and compliance with market conduct rules. In [[Definition:Delegated underwriting authority (DUA) | delegated authority]] arrangements, carriers routinely audit their [[Definition:Managing general agent (MGA) | MGAs]] and [[Definition:Coverholder | coverholders]] to confirm that underwriting, pricing, and claims decisions conform to the [[Definition:Binding authority agreement | binding authority agreement]]. [[Definition:Lloyd's | Lloyd's]] of London operates a particularly rigorous audit ecosystem, with both Lloyd's-mandated performance reviews and syndicate-level audits ensuring market discipline. Additionally, premium audits — common in U.S. commercial lines such as [[Definition:Workers' compensation insurance | workers' compensation]] and [[Definition:General liability insurance | general liability]] — involve verifying that the policyholder's actual exposures match the estimates used to calculate the initial premium, triggering adjustments as needed.

💡 Robust audit functions serve as a critical line of defense against the risks that are endemic to insurance: reserve manipulation, unauthorized underwriting activity, fraudulent claims, and inadequate capital. High-profile insurance failures — from the collapse of HIH Insurance in Australia to the regulatory interventions at Equitable Life in the UK — have often been traced back to audit weaknesses, whether in the form of insufficient actuarial challenge, overreliance on management's own loss estimates, or failure to scrutinize related-party transactions. As a result, the regulatory expectations placed on insurance auditors have intensified globally, with requirements for actuarial sign-off on reserves, auditor rotation rules, and expanded scope around [[Definition:Enterprise risk management (ERM) | enterprise risk management]] and [[Definition:Own Risk and Solvency Assessment (ORSA) | ORSA]] processes becoming standard features of the supervisory landscape.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Statutory accounting]]
* [[Definition:Loss reserves]]
* [[Definition:Regulatory examination]]
* [[Definition:Premium audit]]
* [[Definition:Actuarial opinion]]
* [[Definition:IFRS 17]]
{{Div col end}}

Definition:Insurance audit - Revision history

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