How to Solve Audit Challenges during Premium Reconciliation

Learn why audit has to be an integral part of the premium reconciliation process

Tunde PanakiFebruary 28, 2017

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We have now discussed how to navigate the insurance premium process and the challenges faced by IT departments. The third blog in our series will discuss the challenges faced by even the best-performing audit teams and how to successfully tackle those problems.

Premium reconciliation tracks all the sources of premiums (from policy and billing to payment portals, intermediary systems and then to the general ledger and permanent data stores) to determine the insurer’s direct written premiums, earned premiums, and unearned premiums for each month.

However what some may not realize is how deeply engrained audit is in the premium reconciliation process.

To ensure independent financial accountability, audit has to be an integral part of premium reconciliation.  It’s the audit team’s responsibility to ensure that the insurer adheres to regulations around premium reconciliation, to be compliant with Model Audit Rule (MAR) regulatory provisions. Here is a quick reminder about MAR.

Model Audit Rule (MAR)

MAR is officially referred to as the Annual Financial Reporting Regulation applicable to insurance companies. MAR, just like SOX, was passed because of corporate financial scandals like Enron and WorldCom where ineffective control environments allowed improper accounting and inflated profits. MAR creates better corporate control environments and holds executives personally accountable for internal control over financial reporting. MAR applies to all insurers in the U.S. with $500 million plus in direct written premiums.

MAR has three parts:

  • An annual audit of an insurer’s financial reports by external auditors
  • A letter about internal controls covering financial reporting included in the annual audit
  • An attestation from the CEO and CFO to verify the accuracy of internal controls over financial reporting

Scandals like WorldCom and Enron are a thing of the past. In today’s environment, organizations are now used to stringent regulations like SOX and MAR. Which begs the question, why would MAR introduce challenges to audit?

Bring on the Challenges

Most people would assume that the audit trail is the biggest challenge auditors face when it comes to MAR, but that is not the case. The biggest challenge is ensuring that the proper controls are in place to comply with MAR. As you may know, auditors face multiple challenges when it comes to controls.

First, updating controls takes quite a bit of time and is very labor intensive. Many organizations simply do not have the headcount to manage audit tests on internal controls, which tend to be manual. Organizations need a platform that offers automated controls that check 100 percent of data moving into and out of all their databases and provides visibility into the results.

Another challenge is the vast array of disparate systems and associated controls that must be tested and documented. If an insurance company migrates to a new core system that provides a set of applications to support insurance operations, these can further complicate the process by introducing even more controls that need to be tested. To solve this challenge, organizations need a platform that spans across the enterprise and can reconcile data across disparate systems with complex business rules.

Finally, the audit team and IT department do not always work well with each other. (Yep, I hate to say it.) When this happens, it could present a significant challenge. To be successful, audit must lay out for IT what controls need to be in place and perform random tests to ensure that the controls set up by IT are compliant. But, this can only be done if the audit team and IT department each do their part. IT would need to have the controls in place, which isn’t always their top priority. Because yearly attestation is due in June, this often presents a time crunch from conflicting priorities. By working further in advance and establishing priorities, audit will have no problem sending their annual report to the State Department of Insurance on time.

Now…what if you could avoid these issues and make it turnkey, easy and flexible to get all of this completed?

A New Hero in Town

An Enterprise Data Analysis platform has automated controls that check 100 percent of the data while reducing the time and effort required for testing. In addition, the platform provides visibility and an audit trail that can be provided to both internal and external auditors.

An Enterprise Data Analysis platform makes life easier for auditors by testing controls, making sure the controls are working and remediating any controls that are not working. If any controls fail the platform will tell you.

To learn more about premium and billing reconciliation, download this data sheet:

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