Casualty Actuarial Society (CAS) Practice Exam

Which component is commonly a part of the premium audit process?

1. Designing marketing strategies

2. Assessing customer satisfaction

3. Evaluating policyholder exposure units

4. Conducting competitor analysis

The correct answer is: Evaluating policyholder exposure units

The premium audit process is essential in the insurance industry, particularly for ensuring that the premiums charged to policyholders accurately reflect the risk and exposure associated with their policies. Evaluating policyholder exposure units is a crucial component of this process. This evaluation involves assessing the parameters that define a policyholder’s risk profile, such as the number of employees, payroll amounts, revenue, or specific operational metrics relevant to their business. Premiums are often calculated based on these exposure units, so an accurate review ensures that the company collects the appropriate amount of premium that corresponds to the actual risk being insured. This leads to fair and equitable pricing and helps in maintaining the insurer’s financial stability. While other options may pertain to business operations in the broader context—creating marketing strategies, assessing customer satisfaction, or analyzing competitors—they do not directly relate to the mechanics of the premium audit process, whose primary function is the accurate assessment of exposure to risk. Thus, evaluating policyholder exposure units is the correct and relevant aspect of the premium audit process.