Insurance Audit Programme

7/30/2019 Insurance Audit Programme

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INSURANCE AUDIT PROGRAMME

submitted 9/23/99 by [email protected]

Risk Management Objective

The purpose of risk management is to reduce the group's exposure tofinancial liability as the result of accidental losses or otherevents causing potential or actual liabilities.Insurance is a subset of risk management, and used as a tool tomanage specific risks.

Audit Objectives

a) To assess the effectiveness of the risk management processb) To ensure that all divisions adequately cover the insurable risksin their respective business units

c) To determine whether the insurance coverage is cost-effectived) To ensure that the procedures for reporting incidents and makingclaims are adequate and appropriatee) To determine whether uninsured risks should be insured

Scope

A Review of the risks identified in divisional strategic planningB Review of risk management in the groupC Review of insurance policies and contractsD Review of insurance costs and premiumsE Review of incidents and claims procedures

F Review of uninsured risks

A. Risks Identified in Divisional Strategic Planning

Audit objectives: to ensure that all risks and their correspondingimpact have been properly identified, and that action plans havebeen appropriately formulated.

1. Examine the process management undertakes to identify and assessrisks2. Review the risks identified by divisions and determine whether

all risks have been identified3. Review the operational and financial impact of each risk anddetermine whether action plans to manage risks are appropriate

B. Risk Management

Audit objectives: to review the risk management process andprocedures to ensure that risks are properly identified andassessed, and action plans correctly formulated.

Risks generally fall into the following broad categories:

1 Property risks2 Liability risks


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3 Employee risks4 Operational risks

* Determine the officers responsible for risk management* Review the procedures for managing risk in terms of:- identification of potential claims (and future projections)- purchase of appropriate coverage- other action programs instituted to decrease losses/risk- review of uninsured risks (and exposre to potential claims anddeductions)- approval of the risk management policies and procedures manual* Review strategies used to manage risks:- Aviod (ie. other alternatives)- Acccept (ie. after they are minimised)- Diversify (ie. other business activities)- Share/transfer (ie. through contracts such as insurance and jointventure partners)

B. Review of Insurance Policies and Contracts

Audit objective: to ensure that insurance policies are cost-effective in terms of adequately covering the groups exposure tospecifically identified risks.

1) Information required

Obtain the schedule of insurance that summarises all policies. Theschedule should contain the following information:- Policy period/Insurers

- Nature of coverage, type, and description- Premiums to be paid- Amount of coverage and applicable limits- Deductibles

2) Description of the business

Audit objective: to ensure that the description of the business isappropriate for insurance purposes.

Insurance premiums are determined in part by industry

classification.

Review the current description of the business to determine whetherit is appropriate given the current activities and structure of thebusiness.

3) Review of insured risks

Audit objective: to ensure that the group has adequate insurancecover over significant risks.

Review the schedule of insured risks to ensure that all divisions

are adequately covering all risks on a cost-effective basis. Thiscan be achieved by comparing insurance coverage from prior years as


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well as reviewing loss/claim histories.

4) Annual declarations for premium renewal and adjustment purposes

Audit objective: to ensure that the relevant insurance company isadvised of any material changes in business activities or insurableitems during the year that will effect insurance coverage.

Obtain memos and schedules that have been supplied to insurancecompanies on renewal of policies.

Specific policies require annual declarations for premium renewal.For example, payroll records are externally audited for WorkersCompensation purposes.

Review all declarations made when the contracts of insurance arerenewed and during the course of the year.

C. Review of Uninsured Risks

Audit objective: to determine whether the group should insure someof the risks that are currently uninsured.

Review the list of uninsured risks and determine whether it iscomplete (prior year schedules may be useful for this purpose).

Review action plans formulated to manage these risks, and assesswhether they are apprpriate.

Determine whether the group should be insuring for any of theserisks.

D. Review of Insurance Costs and Premiums

Objective: to determine whether costs and premiums for insurance canbe reduced.

Obtain the schedule of insurance premiums by division over the lastthree years.

Investigate the reasons for changes in premium costs as to whetherthey have occurred because of industry factors (uncontrollable) orcompany factors (controllable).

In the case of company factors, consider whether there are anyremedial actions available that can be implemented by management toreduce the level of incidence.

E. Review of Incidents and Claims Procedures

Audit objective: to ensure that all incidents are reported properly,and that claims procedures are being followed correctly.

Review the procedures over the reporting of incidents and the


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procedures for making claims. For example, consider the followingcategories of claims:

1) Workers compensation claims

Obtain the schedule of workers compensation claims.

Review the list of current employees who are currently under workerscompensation.

Consider whether there are any remedial actions available that canbe implemented by management to reduce the level of incidence.- OH&S issues- OH&S audits- Establish an OH&S committee- Change in work practices- Independent advice

2) Motor vehicle accident claims

Obtain the schedule of motor vehicle accident claims.

Review the policies and procedures for motor vehicle accidentclaims.

Consider whether there are any remedial actions available that canbe implemented by management to reduce the level of incidence.- Advanced driving courses- Accident reporting procedures

- Police involvement

3) Property loss or damage

Obtain the schedule of property damage claims.

Review the policies and procedures for property damage claims.

Consider whether there are any remedial actions available that canbe implemented by management to reduce the level of incidence.

4) Theft or misappropriation claims

Obtain the schedule of theft or misappropriation claims.

Review the policies and procedures for theft or misappropriationclaims.

Ensure that where perpetrators can be properly identified that allthefts or misappropriation are reported to the police.

Consider whether there are any remedial actions available that canbe implemented by management to reduce the level of incidence.

- Increased physical security (incidents versus cost)- Increased internal controls (eg. Management review, reporting,


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independent review, systems)- Computer security and back up

January 1999

Documents

Insurance Audit Programme