Underwriting audit
An independent, periodic review of a sample of underwriting files, by internal audit, a reinsurer or a delegating principal, to check compliance with rules and the quality of decisions.
An underwriting audit examines a sample of files after the fact to check that the decisions taken respect the underwriting policy, delegated authorities, pricing rules and regulatory requirements, and that they are properly documented. It is conducted by someone outside the audited team: the insurer's internal audit, a central control team, a reinsurer wanting to understand what it reinsures, or the delegating insurer overseeing an underwriting agency to which it has delegated authority. It differs from peer review in its independence and purpose, which is control rather than continuous improvement. Its findings concern specific gaps: risks outside delegation, unauthorized clauses, prices below minimum, unjustified exceptions, risks missing from bordereaux. For a delegated underwriter, the audit conditions continuation of the delegation; for a reinsurer, it underpins confidence in the bordereaux received. The 2023 reinsurance collateral fraud scandal showed that audits must also verify the existence of assets and counterparties, not just file compliance.
Textbook case: an insurer audits each year the underwriting agency to which it delegated a program of 30 million euros of premium. Of 200 files examined, 14 exceed the authorized per-risk limits and 9 include an extension not provided for in the delegation; the insurer demands remediation and reduces the delegation for the following year.
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