Carrier Audit of Your Pet Insurance MGA: What Happens and How to Prepare

A carrier audit is not something to dread it's an opportunity to demonstrate that your MGA is well-run, compliant, and trustworthy. But it does require preparation. Carriers audit their MGAs to verify that you're following underwriting guidelines, handling claims fairly, managing premium money properly, and maintaining regulatory compliance. Here's what to expect and how to prepare.

Talk to Our Specialists

What Does a Carrier Audit Involve?

A carrier audit is a structured review of your MGA's operations across underwriting, claims, financial management, regulatory compliance, and IT security. Carriers conduct these audits to confirm that their delegated authority is being exercised properly and that policyholder interests are protected.

1. Types of Carrier Audits

Audit Type	Scope	Frequency	Duration
Comprehensive annual	All areas	Annual	3–5 days on-site
Underwriting review	Policy issuance compliance	Annual or semi-annual	1–2 days
Claims audit	Claims handling practices	Annual	1–2 days
Financial audit	Premium accounting, remittance	Annual	1–2 days
IT security audit	Data protection, cybersecurity	Annual	1–2 days
Targeted audit	Specific concern area	As triggered	1–3 days

2. What Triggers Additional Audits

Trigger	Likely Audit Focus
Loss ratio deterioration	Claims handling, underwriting
Customer complaint spike	Claims, customer service
Regulatory inquiry	Compliance, documentation
MGA agreement renewal	Comprehensive review
New state expansion	Underwriting, compliance
Premium growth surge	Underwriting quality

What Are the Key Audit Areas Carriers Examine?

Carriers examine five core areas during an audit: underwriting compliance, claims handling, financial/premium accounting, regulatory compliance, and IT security. Each area involves reviewing sample files, verifying processes, and comparing actual practices against your MGA agreement obligations.

1. Underwriting Compliance

What They Review	What They Look For
Policy files (sample of 25–50)	Proper documentation, signed applications
Rating accuracy	Premium matches rate manual
Eligibility verification	Pets meet underwriting criteria
Binding authority	Within MGA's approved authority
State compliance	State-specific requirements met
Waiting period enforcement	Waiting periods correctly applied

2. Claims Handling

What They Review	What They Look For
Claims files (sample of 25–50)	Complete documentation, proper adjudication
Coverage determination	Correct coverage interpretation
Payment accuracy	Correct reimbursement calculations
Turnaround time	Compliance with prompt payment laws
Denial documentation	Proper denial reasoning and notification
Appeal handling	Fair appeal process in place

3. Financial/Premium Accounting

What They Review	What They Look For
Trust account management	Proper segregation, no commingling
Remittance accuracy	Correct and timely carrier remittance
Commission calculations	Match agreed commission rates
Reconciliation records	Bank ↔ PAS ↔ accounting agreement
Refund processing	Proper cancellation refund handling
Tax handling	Premium tax calculations correct

4. Regulatory Compliance

What They Review	What They Look For
Licensing status	Current licenses in all operating states
Filing compliance	Rate and form filings current
Consumer communications	Comply with state requirements
Privacy practices	CCPA, GLBA compliance
Complaint handling	Proper process and response times
Record retention	Meeting state retention requirements

5. IT Security

For IT security audit preparation, see our dedicated guide.

How Should You Prepare Using a 90-Day Checklist?

The most effective audit preparation follows a structured 90-day timeline that begins with reviewing your MGA agreement requirements and conducting an internal pre-audit, progresses through documentation organization and financial reconciliation, and concludes with final logistics and team briefing.

1. 90 Days Before

Action	Priority
Review MGA agreement requirements	Critical
Conduct internal pre-audit	Critical
Identify and fix known issues	Critical
Organize documentation by category	High
Review sample policy files	High
Review sample claims files	High

2. 60 Days Before

Action	Priority
Complete reconciliation of all financial records	Critical
Verify licensing in all states	Critical
Run quality checks on PAS data	High
Prepare metrics and dashboards	High
Brief team on audit procedures	High
Confirm IT security controls	High

3. 30 Days Before

Action	Priority
Final documentation organization	High
Prepare audit room/access	Medium
Assign point person for each audit area	High
Prepare executive summary of operations	Medium
Address any remaining findings from pre-audit	High
Confirm auditor logistics (dates, access, contacts)	Medium

What Documentation Do You Need for a Carrier Audit?

You need a comprehensive evidence binder organized by section that includes your MGA agreement and amendments, state licenses, underwriting guidelines, claims SOPs, financial statements and reconciliations, compliance records, IT security documentation, carrier reports, and personnel records. Sample files for policies and claims should also be pre-pulled and organized.

1. Evidence Binder Organization

Section	Documents
MGA agreement	Current agreement, amendments, authority letters
Licensing	State licenses, renewal confirmations
Underwriting	Guidelines, procedures, rating manual
Claims	SOP, adjudication guidelines, denial templates
Financial	Trust account statements, reconciliations, remittance
Compliance	Compliance manual, training records, complaint log
IT security	Security policy, SOC 2, DR plan, pen test results
Reporting	Monthly reports to carrier, performance dashboards
Personnel	Org chart, job descriptions, training records

2. Sample File Preparation

File Type	Sample Size	What to Include
New business policies	25–50	Application, dec page, payment, correspondence
Renewal policies	15–25	Renewal notice, new dec page, rate change documentation
Cancelled policies	10–15	Cancellation request, notice, refund calculation
Paid claims	25–50	Claim form, invoice, adjudication notes, payment, EOB
Denied claims	10–15	Claim form, denial letter, appeal information
Appealed claims	5–10	Original denial, appeal, review, outcome

For carrier reporting and market conduct preparation, see our guides.

What Are the Most Common Audit Findings?

The most common audit findings include incomplete policy files, claims documentation gaps, reconciliation discrepancies, and rating errors. Most findings fall into the medium severity range and can be prevented with proper checklists, automation, and regular internal quality reviews.

1. Most Frequent Audit Findings

Finding	Severity	Frequency	Fix
Incomplete policy files	Medium	Very Common	Checklist + automation
Claims documentation gaps	Medium	Common	Claims SOP training
Reconciliation discrepancies	High	Common	Monthly reconciliation process
Rating errors	High	Moderate	Automated rate verification
Late remittance	High	Moderate	Calendar + automation
Missing signatures/consent	Medium	Common	Digital signing workflow
Outdated procedures	Low	Common	Annual review cycle
IT security gaps	Varies	Common	Continuous monitoring

2. Severity Levels and Responses

Severity	Definition	Expected Response	Timeline
Minor	Documentation gap, process improvement	Corrective action plan	60–90 days
Moderate	Compliance issue, financial discrepancy	Remediation plan with milestones	30–60 days
Material	Significant compliance or financial issue	Immediate remediation, enhanced monitoring	15–30 days
Critical	Major breach of agreement or regulations	Immediate action, agreement review	Immediate

What Are the Best Practices During and After an Audit?

The best practices during an audit center on being organized, honest, and responsive. Assign a single audit coordinator, provide documents promptly, take notes on all findings, and proactively disclose known issues with your remediation plan rather than letting auditors discover them.

1. Best Practices

Do	Don't
Be organized and prepared	Don't wait until audit week to prepare
Be honest and transparent	Don't hide issues or provide incomplete information
Assign a single audit coordinator	Don't have auditors contact random staff
Provide requested documents promptly	Don't delay or make excuses
Take notes on all findings	Don't forget verbal feedback
Ask questions if requirements are unclear	Don't assume you understand
Proactively disclose known issues with remediation plan	Don't let auditors discover issues first

2. Post-Audit Actions

Step	Timeline	Action
1	Within 1 week	Review audit findings letter
2	Within 2 weeks	Develop corrective action plan
3	Per finding deadlines	Implement remediation
4	Per schedule	Report progress to carrier
5	Before next audit	Verify all findings resolved

Talk to Our Specialists

Frequently Asked Questions

1. What does a carrier audit cover?

Five areas: underwriting compliance, claims handling, financial/premium accounting, regulatory compliance, and IT security.

2. How often are MGAs audited?

Annually is standard. New MGAs may be audited semi-annually. Additional audits triggered by performance concerns.

3. How do you prepare?

Start 90 days before. Internal pre-audit, organize documentation, review sample files, fix known issues, and brief team.

4. What if you fail?

Findings by severity: minor (60–90 day fix), material (30 days), critical (immediate). Most carriers work with you on remediation.

5. What are the most common audit findings?

Incomplete policy files, claims documentation gaps, reconciliation discrepancies, rating errors, late remittance, and missing signatures. Checklists and automation prevent most issues.

6. How long does a carrier audit take?

Comprehensive annual audits run 3–5 days on-site. Focused single-area audits take 1–2 days. Targeted audits last 1–3 days.

7. Can you request a pre-audit or mock audit?

Yes, and it is strongly recommended. Conduct an internal pre-audit 90 days before the expected carrier audit to identify and fix issues proactively.

8. What documentation should you keep ready year-round?

Maintain an organized evidence binder with your MGA agreement, state licenses, underwriting guidelines, claims SOPs, financial records, compliance manual, IT security policies, and carrier reports.

External Sources

• https://content.naic.org/
• https://naphia.org/

Internal Links

• Explore Services → https://insurnest.com/services/
• Explore Solutions → https://insurnest.com/solutions/