Definition - What does Audit mean?

An audit is when one party inspects the financial records or other documents of another party for the purpose of verifying certain information. In the context of insurance, insurance companies regularly audit policyholders in order to make sure that the information they have provided to the insurer is accurate and current.

Insuranceopedia explains Audit

Whether or not a policy holder's information is accurate can have strong implications for the insurer. For example, in workers' compensation insurance, the higher the number of employees, the greater the probability that an employee will require workers' compensation benefits. So, workers' compensation insurers often audit their policyholders to verify that their information is accurate. In particular, they commonly look at payroll information since this largely reflects how many employees are working for the company. General liability insurance and some marine policies are also commonly audited.

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