Retooling the auditing process: an audit that is properly executed will capitalize on a great opportunity to improve.

The recent return to basics in the world of underwriting has placed a renewed emphasis on the underwriting audit process. With scores of new corporate programs and procedures being put into place, the natural next step is a follow-up audit to ensure that appropriate practices are being handled at the underwriting level.

The underwriting audit is one of the best and most powerful tools at a company's disposal. It's an ideal opportunity for underwriters and managers to review and discuss the challenges and the areas of focus of the company. But like anything else, if the audit is poorly composed and executed it can have a negative effect. It can generate inaccurate data, send mixed or unclear messages and create ill will among the troops.

Look for new and better ways to audit. The stereotype of the underwriting audit is taking several stacks of files, locking the auditors away in a conference room and having them emerge three days later with bleary eyes and a list of findings. While the review of files has certain benefits and is an important part of the process, it should not be the sole action of the audit team.

An audit that is properly arranged and executed will capitalize on a great opportunity to learn, to discuss and to improve. The following are some items to consider when developing an underwriting audit program:

* Communicate the goals of the audit. So many issues can be covered in an audit that it is crucial to develop a list of priorities and communicate it to the field. This should include input from the branch before the audit. Together, a specific agenda should be discussed and developed prior to the arrival of the audit team.

* Emphasize learning. Field and audit people can learn a lot from each other. The audit team is generally composed of key people from the company's home office. Their view is by nature a big-picture view of the company and the industry; field personnel are more focused on day-to-day issues.

Both viewpoints are essential to a healthy company, and neither group is complete without a knowledge and understanding of the other. There is immense knowledge on both sides, but it is usually communicated through guidelines and e-mails. While everyone is together at the audit, make it a point to learn from each other's views and experiences.

* Make presentations. Audits tend to be one-sided. The audit team makes the calls, asks the questions and presents the findings. It's recommended that the group being visited makes a presentation to the auditors. This should be done early in the audit process and it should give the auditors an overview of the team as well as its markets, strategies, challenges and successes.

Making a presentation to the audit team is a great opportunity to humanize the branch, to open the lines of communication and to give the auditors a preview of the accounts they are about to review. Time should also be set aside for having one-on-one discussions.

* Train on emerging issues. Every carrier has its "hot buttons." For example, the current property market is addressing such key areas as terrorism. Mold is an issue across several lines of business. These are areas where there are changes every week in the marketplace. New coverages, exclusions and pricing methodologies are rampant, and it's important that all of the field people are on board with the latest corporate stances.

* Review files. Again, avoid making "audit" synonymous with "file review." Still, there are numerous benefits to reviewing files and that point should not be underestimated. The point is to avoid making the file review the sole focus of the audit. Reviewing files should help the audit team get a flavor for the book of business. It also can be beneficial to look at some accounts that were not successfully written, which may illuminate some of the challenges of the market or areas for underwriters to improve.

* Follow through. When the audit is finished, there probably will be a number of open items and unanswered questions. In addition, items will be uncovered that can be improved upon. There also may be some things which can be shared with other branches. The audit shouldn't end when the auditors walk out the door.

Michael P. Egan, a Best's Review columnist, is a property officer with Swiss Reinsurance Co., Philadelphia. He can be reached at [e-mail]