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It is mandated for all insurance companies of the country to be audited from time to time. The Indian Insurance Act, 1938, clearly mentions that all insurance companies’ financial statements and required documents must be audited every year.
This is done to ensure transparency, honesty, and integrity within the insurance sector in India. Insurance is a crucial industry in India, and its smooth and efficient functioning is critical to the nation’s development.
This article will aim to discuss some of the following essential aspects of the audit of insurance companies:
Every insurance company’s auditor needs to be selected by the company’s shareholders and approved by the Comptroller and Auditor General of India. The selected auditor should have an impeccable resume and no history of malpractices.
Mentioned within are the roles of the insurance auditor’s:
An insurance auditor audits the following documents and financial statements:
According to Section 177 of the Companies Act, 2013, every insurance company must appoint an audit committee. This audit committee comprises independent directors, experts in the financial field. The Chairman of the audit committee must be considered a financial expert.
It is the audit committee’s role to appoint external auditors, incorporate a whistleblower program, take action in the event of financial malpractices.
Mentioned below are the seven important audit points that every insurance auditor audit:
The external insurance auditor will examine the bank accounts where customer premium is credited. All due diligence must be done to ensure that all received premium is accounted for. The auditor must tally the premium received with the number of policies issued. Any misgivings should be immediately flagged.
Commissions are paid to the insurance brokers who bring business to the insurance company. It is the insurance auditor’s job to ensure that all commissions paid are accounted for. There should not be any misrepresentation of funds or illegitimate laundering taking place.
The operating expenses of an insurance company must be scrutinized, and the report must be filed accordingly. Any red flags in OPEX must be brought forward to the auditing committee. The auditors must be particularly prudent in their OPEX investigation as many dishonest company-men route illegitimate funds in the guise of OPEX.
It is the auditor’s task to ensure that the proper provisioning is made concerning claims liability. There should not be any over or under-provisioning. The provisioning should be in line with claim liability; this will ensure the sustainability of the insurance company.
This is one of the cornerstone responsibilities of an auditor. The auditor must check the financial statements like the Balance Sheet, P&L Statements, Cash Flow Statements, etc. Further, the auditor must also provide audit reports on the cash and bank balance, equity, and debt investments of an insurance company.