PREMIUM AUDIT: FROM CAST-OFFS TO COMPUTERS|
From The Visiting Fireman, Vol. 12, No. 16, Pages 6-7, October 1978.
On the eve of his retirement, veteran premium auditor Dana Sparrow reminisced about his 43-year career and the changing state of his profession, in this interview by Ginger Stagner, HO Public Relations.
It was 1935 and The Great Depression was at its height. Dana Sparrow was one of thousands eagerly pounding doors in search of a job. He managed to knock on the right door, a Hartford-based insurance company, and began a 43-year career as an insurance premium auditor.
"I was told to report to work at Travelers on a Monday morning. I walked in, they gave me some car keys, a briefcase and a comp manual, and said 'You're a premium auditor, now go make audits.' That was my introduction to premium audit," says Sparrow, who stayed with The Travelers seven years, before joining Fireman's Fund in 1942.
On September 29, Sparrow, 65, retired from Fireman's Fund, where he was assistant vice president and premium audit manager. Sparrow, who is credited with almost singlehandedly developing the premium audit function at Fireman's Fund, worked throughout his career to upgrade the professional status of premium auditors. His long list of professional activities includes serving as president of both the California Insurance Audit Managers Association and the Insurance Auditors Association of the West.
The day after his retirement from Fireman's Fund, Sparrow went to work as the first executive director and secretary of the National Society of Insurance Premium Auditors. He was instrumental in founding that organization, though he modestly contends, "It was quite by accident."
Sparrow explains that when the local insurance auditors organizations in the Southwest states formed the first regional auditors association in the late 1960s, he was invited to their annual meeting. Sparrow was the only auditor present not from the Southwest. Members of the group asked him to stand up and say a few words.
He told the auditors how much they had accomplished in forming the first regional association and that someday he hoped to see a national association. "Talk about lighting a fire," says Sparrow. "From that point on they bugged the heck out of me to start a national association.
Nearly ten years later, in 1976, Sparrow realized his goal of a National Society of Insurance Premium Auditors. He views the establishment of a national organization as "an important milestone in the growth of professionalism within the ranks of premium audit."
When Sparrow became a premium auditor back in the '30s, there were no standards for employment. "Anybody who was willing to spend a lot of time on the road and could work without much supervision qualified to be an auditor. Often auditors were there because they had failed in other areas, like underwriting or sales. And training was virtually nonexistent," he says.
Most insurance companies now have formalized training programs for auditors and college-level accounting courses are a must. Using Fireman's Fund as an example, Sparrow says, "Our premium auditors have a one-year training program that includes textbooks and written exams, as well as practical work experience."
Sparrow attributes changes in the hiring and training of premium auditors to a better understanding by insurance companies of the value auditing has to bottom-line profits. "It's not unusual today for an auditor to examine a large policy and develop an additional million dollar premium. That's a significant sum of money for an insurance company to lose by not having qualified auditors.
Premium auditors traditionally are responsible for examining the business records of insureds to determine the exact amount of earned premiums on their workers' compensation, liability, or auto fleet policy. "The job isn't as cut-and-dried as it may sound," Sparrow says. "Business records are usually not set up for insurance purposes and therefore don't always contain the information the premium auditor needs. Fifty percent of an audit is sensing what's going on in a business and asking the right questions."
He uses a workers' compensation premium audit as an example: The customer's records might list an employee in a very broad job classification, like "office worker." Asking the insured what specifically the employee does, the premium auditor may find that the employee drives the truck parked outside to run office errands. That classifies the employee as a "truck driver" - and ups the customer's premiums.
There's the other side of the coin, too, Sparrow points out. For instance, the audit may reveal that the customer's annual payroll was overestimated. That entitles the customer to a premium refund.
Only recently have premium auditors come to be considered valuable members of a company's sales team, going along with agents to visit prospective customers. "The auditor checks to see if the competition used the correct insurance classification in writing the previous policy. If the auditor finds that the original deposit premium was set too high, that's a sales tool for the agent," Sparrow explains.
While business records today may not be an insurance auditor's dream, they are nowhere near the nightmare they were in Sparrow's early days of auditing. "Records frequently were entered in a little five-cent notebook the employer kept in his hip pocket. The audit would consist of sitting down with the guy, usually in the evening at his kitchen table, and trying to decipher the writing in the notebook," the veteran auditor recalls.
Back in those days, too, business records were considered highly personal information. "Asking a man to see his books, especially his payroll, was like asking if you could sleep with his wife," says Sparrow, who remembers being booted down a flight of stairs and into the street by a New York restaurant owner, reluctant to let the auditor examine his business records.
Today the greatest challenge facing premium auditors is not gaining access to business records in general. Rather, Sparrow contends, it's gaining access to the right business records, as more and more companies convert from manual record keeping to automated systems.
"It used to be that insurance auditors could sit down with an insured's books and see everything. With EDP (electronic data processing), the auditors have to tell the insured exactly what records they want to see. A button is pushed and out comes the information - and that can easily be manipulated," he explains.
Sparrow says he has no solution to the problem EDP is creating. "That's something the future generation of auditors will have to work on," he says. But that's not to give the impression work is over for the retired Fireman's Fund executive. His immediate goal as the first director of the National Society of Insurance Premium Auditors is to establish a professional certification for auditors, similar to the CPCU designation.
Already there is debate within the association over whether there should be a grandfather clause whereby those members with twenty-plus years of experience would receive certification without an examination or other measure of their professionalism. Sparrow stands firm in his opposition to such a clause.
"We are setting up the certification program for future premium auditors, not ourselves. Our objective is to raise the professional standards to make it better for those who come along. Premium audit no longer takes cast-offs," Sparrow says.
[Fireman's Fund Archives: 4-1-3-5-39; 1339]
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