Skip to content

CS Professional · Internal and Forensic Audit · Special Points relating to Internal Audit in various Entities

Suraksha Life Insurance Ltd's internal audit team is reviewing the underwriting function. A sample of proposal forms shows that several high sum-assured policies were issued without the medical reports required by the company's board-approved underwriting policy. What is the most appropriate internal audit observation?

The auditor should report it as an underwriting control failure. Issuing high-value policies without mandatory medical reports breaches the approved underwriting policy and creates anti-selection and higher claim risk, so exceptions must be reported. Timely premium collection or actuarial involvement does not remove this lapse.

  1. AUnderwriting control failure: the policy was not followed, so the audit should report the exceptions and the risk of anti-selection and higher claimsCorrect
  2. BThe matter is only for the actuary because medical reports affect premium rates
  3. CNo issue arises if the premiums were collected on time
  4. DThe matter should be left to the statutory auditor because policies are issued by the company

Explanation

Underwriting is meant to assess risk before acceptance. Issuing high-value policies without required medical reports breaches the approved policy and exposes the insurer to anti-selection and higher claims. Internal audit should report the exceptions with the risk implication. Timely premium collection does not cure a failure to assess risk.

Did you get it right without looking?

One question tells you little. A timed set on Special Points relating to Internal Audit in various Entities shows your real accuracy, how long you take and where you lose marks.

Practise Special Points relating to Internal Audit in various EntitiesFree diagnostic mock

More Special Points relating to Internal Audit in various Entities questions