Audit” is not a Four-Letter Word

Insurance companies do it; FDIC regulators do it; even the Georgia Department of Banking and Finance “highly recommends” doing it. Why do it? Why have an Insurance AUDIT? Can it ever save you money? A risk management and insurance audit, done correctly, can be both helpful AND might just save you money.

As everyone knows, if you know what you want, you are far less likely to be “sold” something you don’t want, and far more likely to get what you DO want at a competitive price. An objective, professional audit of your risk management insurance program should provide you with a blueprint of your insurance needs. With this blue print you can obtain competitive prices on just the program you need without the frills.

There are three important elements you should look for in your audit:

1. First and foremost, whoever does the audit should be totally objective, and to get a truly objective Audit, it should be done by one of the following: a) An insurance company auditor (NOT your insurance company) b) A qualified insurance agent (Not yours) c) An attorney (again, not the Bank’s attorney) that specializes in insurance law, or d) A Fee Only insurance consultant whose specialty is financial institution insurance analysis.

Having your audit done by an employee of your bank will not be satisfy the objectivity required by the Georgia Department of Banking and Finance.

2. Competency - Be sure the individual doing the audit has an expertise in Financial Institution insurance. Bank insurance is a very specialized field. Ask for the auditor’s educational background, and references showing experience in the Financial Institution insurance field.

3. Integrity - Your auditor will have to examine some sensitive corporate material. Any proposal for services should include some sort of Confidentiality Agreement. What should you expect from an insurance audit?

There are several benefits of an Insurance and Risk Management Audit. You should expect your report to contain: a) A complete overview of your present program. Your present program should be explained simply and completely. You should have a good understanding of your current program including what it covers and what it does not cover. b) Recommendations for improvement of your program, if necessary, should be provided. Methods of handling loss exposures other than insurance should be discussed where appropriate. All catastrophic loss exposures should be addressed with recommended methods of properly addressing them. c) Cost reduction methods should be mentioned where viable. The most cost-effective ways of addressing loss exposures should be discussed. This discussion should include non-insurance methods, as well as insurance options.

Finally, be sure to make your expectations from the audit clear to the auditor. If you want emphasis placed on claims reduction, possible self-insurance opportunities, coverage gaps, or reduction in premium cost, tell the auditor, so he/ she may attempt to meet your needs.

Conclusion If done properly and used efficiently, the Insurance Risk Management Audit can be an effective tool in combating the rising costs of insurance while not compromising loss protection. The well-informed banker is far more likely to purchase what he/she needs at a competitive price, than the banker who is vulnerable to the ravages of the marketplace. Used correctly, the Insurance Risk Management Audit should result in a seven-letter word, “Savings.”

W. Hank Bahr

CPCU, ARM, CIC, CRM Bahr Constultants, Inc

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