Captive insurance programs are a great way for companies to manage and mitigate risk while protecting cash flows and expense outlays. Similar to public entity pools where insurance programs are administered specifically for the group being covered, captive insurance companies are actually owned by the entity or entities for which coverage is provided.
In order for a captive to be profitable, and for the safety of the insured to be protected, it is important that a well-functioning audit system is in place. To assure that the audits are accurate and informative, the following tips may be helpful.
Establish A Policy for Auditing
In order for an audit to work well, a protocol must be established for identifying risks, managing those risks, and following up when exposures are identified. This can usually be done through the insurance company software and can include:
- Identifying the primary risks within the organization
- Focus on areas that have been problematic in the past
- Establish time frames for scheduling audits for each given area or issue
- Determine the documentation that will be required for each audit as well as the methods that will be used to gather evidence
- Establish a “chain of command” for resolution of any issues that may arise
Audit Objectives Should Be Clearly Defined
An audit should never be a witch hunt or an endeavor to place blame on any individual for problems that may arise. For this reason, company policy should clearly set forth the purposes of audits as a means to protect company assets including the staff and property.
Methodologies Should Be Determined
There are various methods that can be used for safety audits, including questionnaires, surveys, telephone interviews, and in-person conferences. Because one method may not work for all audits, it may be necessary to employ different methods for different departments.
Audit Reports Should Be Clear and Concise
When preparing audit reports, a standard format should be used with objective language that sets forth the facts. The format could include the following sections:
- The situation that spurred the audit (“regularly scheduled audit” or description of an incident that may have resulted in the need for the audit)
- Recommended course of action
It is recommended that, once findings have been identified and reported, a system should be in place for following up and making sure that the issues have been resolved. If the follow-up will be in the form of the next scheduled audit, then the findings of the previous audit should be referenced and checked for resolution.