What happens if the audit reveals the earned premium is less than the original estimate?

If an audit reveals that the earned premium is less than the original estimate, the appropriate action is to return the excess amount to the insured. This situation typically arises in insurance contracts that involve adjustments based on certain exposure metrics, such as payroll or sales, where the estimated premium is initially set but may need to be recalculated to reflect the actual exposure during the policy period.

Returning the excess amount safeguards the principle of fairness in the insurance agreement. The insured should not pay more than what is warranted based on the actual risk exposure during the period of coverage. This practice ensures that the insurer remains equitable in its dealings and maintains good customer relations.

This approach is rooted in the premise that insurance premiums are meant to cover the actual risks assumed by the insurer. When actual data indicates that the risk was lower than anticipated, it ensures that policyholders are not unduly charged, thus fostering trust and transparency in the insurance relationship.