Audit of Insurance Industry Including Hmo: Specialized Industries
Audit of Insurance Industry Including Hmo: Specialized Industries
Audit of Insurance Industry Including Hmo: Specialized Industries
AuditSpecialized
of insurance
Industries
industry including
hmo
Group 8
Leader: De Vera,
Kyle C
Members: Evangelista,
Cristalyn B.
Gabriel,
Rosemarie C.
2
Learning
Outcomes
At the end of the lesson, the students are expected to:
1. Understand the definitions, distinctions, and types of insurance.
2. Be able to define insurance audit.
3. Determine the different audit procedure in Profit or Loss Account and
in Balance Sheet of insurance companies.
4. Determine the steps taken by the auditor in auditing an insurance
company.
5. Obtain information about the contents of an auditor’s report aside
from the normal contents prescribed for ‘Limited Companies’
6. Distinguish the difference between PhilHealth, Private Health
Insurance, and HMO.
7. Understand the examination cycle in auditing HMO businesses.
3
What is insurance?
Distinction of
Insurance
5
Types of Life
A. Life Insurance Insurance
Life insurance promises specific • Term/Protection Insurance
financial compensation to the • Endowment/Pure
beneficiary in case of the demise Endowment
of the insured person. To avail • Money Back Plan
the insurance benefits, the • Whole Life Insurance
policyholder is liable to pay the Product
premium amounts regularly and • Unit Linked Insurance Plan
timely, as per the policies of the • Pension or Retirement Plans
chosen plan. • Annuities
• Group Insurance
• Others
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Types of General
B. General Insurance Insurance
General insurance is a general term used • Health Insurance
for all the insurance plans that safeguard • Motor Insurance
things other than life, such as your • Home Insurance
health and valuables against theft, • Travel Insurance
natural disasters, accidents, etc. Timely
premiums are to be paid for the value of
protection chosen by you. The insurance
company is then liable to pay you the
assured sum if any damage or theft
happens to the insured entity.
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INSURANCE AUDIT
1. Investments
a. An insurance company can invest only in approved securities. However, it can
also invest in securities other than approved securities if the following conditions
are satisfied:
♡ The investment made must not exceed 25% of the total investments made.
♡ The investment must be made with the consent of the board of directors.
b. An insurer must not invest in shares or debentures of an insurance or investment
company over least of the following:
♡ 10% of its own total calculated assets
♡ 2% of the subscribed share capital or debentures of the investee.
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account during
insurance audit
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1. Verification of Premium
♡ Insurance Premium is the amount paid to the insurance company for payment of
the insurance contract obtained.
Audit Procedure:
a. Auditor must look into the internal control and compliance which is laid down
for the collection and recording of premium.
b. The cover notes must be numbered serially.
c. The auditor needs to check if the premium registers are maintained
chronologically.
d. The auditor verifies if the premium register is equal to the amount shown in the
General Ledger.
e. Lastly, the auditor also verifies if the installments due on or before the balance
sheet date has been received or not and if it has been accounted as premium
income under the year which the financial statement is audited.
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2. Verification of Claims
♡ Insurance Claims is a formal request by a policyholder to an insurance
company for coverage or compensation for a covered loss or policy event.
Audit Procedure:
a. The auditor shall verify and check for the unsettled claims.
b. Auditor must also check if the provision made with the company for the
claims is legally liable.
c. Then, check if the provision made is not more than the insured amount.
d. Lastly, check the co-insurance arrangement which contains the company’s
provision with respect to its own share of anticipated liability.
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3. Verification of Commission
♡ Insurance Commission is a certain percentage of premium produced that
is retained as compensation by insurance agents and brokers.
Audit Procedure:
a. The auditor shall verify the voucher disbursement entries with regards to
the disbursement voucher with the copies of commission bills and
statement.
b. The auditor also checks if the vouchers are authorized by the officers-in-
charge and also if the income tax is deducted.
c. Then, check the amount of commission allowed.
d. Lastly, check the accounting period of commission.
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Insurance Company
2 4 6
Insurance Company
Examine
Examine the Insurance
Investment Checking of Bonus Policies
7 9 11
8 12
10
Insurance Company
Balances of
Expenses Allocation Agency
14 16
15
13 17
Content of
Apart from normal Auditor’s Report
contents of Auditors report, as prescribed for
'Limited Companies' IRDA has prescribed the certain matters to be
dealt with by the Auditors' in their Report vide Regulation 3 under
Schedule C of IRDA (Preparation of Financial Statements and
Auditor's Report of Insurance Companies) Regulations, 2002. The
Schedule C is reproduced below –
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(a) That they have obtained all the (d) Whether the Balance Sheet, Revenue
information and explanations which, to the Accounts and Profit and Loss Account
best of their knowledge and belief, were dealt with by the report and the Receipts
necessary for the purposes of their audit and and Payments Account are in agreement
whether they have found them satisfactory; with the books of account and returns;
(b) Whether proper books of account have and
been maintained by the insurer so far as (e) Whether the actuarial valuation of
appears from an examination of those books; liabilities is duly certified by the
(c) Whether proper returns, audited or appointed actuary, including to the effect
unaudited, from branches and other offices that the assumptions for such valuation
have been received and whether they were are in accordance with the guidelines and
adequate for the purpose of their audit; norms, if any, issued by the authority
and/or the Actuarial Society of India in
concurrence with the Authority.
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B. The auditors shall express their(b) The financial statements stated at (a) above
opinion on: are prepared in accordance with the requirements
of the Insurance Act, 1938 (4 of 1938), the
(a) (i) Whether the Balance Sheet gives a Insurance Regulatory and Development Authority
true and fair view of the insurers affairs as Act,1999 (41 of 1999) and the Companies Act,
at the end of the financial year/period; 1956 (1 of 1956) [now Companies Act, 2013), to
(ii) Whether the Revenue Account the extent applicable and in the manner so
gives a true and fair view of the surplus or required.
the deficit for the financial year/period; (c) Investments have been valued in accordance
(iii) Whether the Profit and Loss with the provisions of the Act and the
Account gives a true and fair view of the Regulations.
profit or loss for the financial year/period; (d) The accounting policies selected by the
(iv) Whether the Receipts and insurer are appropriate and are in compliance with
Payments Account gives a true and fair the applicable Accounting Standards and with the
view of the receipts and payments for the accounting principles, as prescribed in these
financial year/period. Regulations or any order or direction issued by
the Authority in this behalf
auditors (which is in addition to
C. The auditors shall any other certificate or report
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Hmo
companies
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Health Insurance
Health insurance is a form of financial service that provides financial
security in the midst of an illness or when health calls for it. It is a
form of insurance that covers medical and surgical costs, either by
preventive or corrective means. In most cases, individuals who have
health insurance literally pay nothing after a procedure is done. In
order to enjoy such benefits, the insured pays a premium. While
health insurance is mandatory in the country through PhilHealth, its
coverage leaves a lot to be desired.
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PhilHealth
The Philippine Health Insurance Corporation or PhilHealth
is a government-run insurance provider. Compared to
private providers, this type of insurance is more affordable.
Private health insurance premiums can be a little pricey. They are fully
paid for by individuals voluntarily if they want to be insured. If you want
your family members to be covered, that would be at an additional cost.
Note that this only applies to immediate family members.
Their difference from private health insurance is that they have a network of
doctors and healthcare providers.
Their members can only avail of the benefits from those within that network.
The plans that are offered by HMOs are often customizable but there is usually a
limit to how much financial assistance you can get in a year. The higher the
premium you are paying, the bigger your annual allowance will be, too.
There are several HMO providers in the country but the most popular ones are
Maxicare and MediCard.
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Example audit
examination
cycle
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A. Administrative guidelines
"section 4d and f of the E.O. 192 provides that the Insurance
Commission (IC) shall have the authority to:
d. Regulate, supervise and f. Order the examination of
monitor the operations and documents, papers, files, tax
management of HMOs to ensure returns, books of accounts and
compliance with this Order, other records, in whatever form,
existing laws, rules and of any entity, person, or any
regulations and such other HMO under investigation,
directives and circulars issued by including persons, entities and/or
the Insurance Commission. corporations with related
interest.
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D. On-site
Examinatio
n
C. Annual filing of
Audited financial
statements
F. Off-site E.
Examination Concluding
(Verification) the
Examinatio
n
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Section 2.1
of CL 2016-
C. Annual filing 41 and CL
of Audited 2017-32
financial
statements
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Preparations
First Day, examiners present
the designation letter to the
President of the HMO
company authorizing them to
conduct the said examination
D. On-site
Examinat President – Chief Accountant –
ion Department Officers
F. Off-site
Insurance Specialist verifies and Examinatio
analyses the accounts in the n
Audited Financial Statements (Verificatio
n)
Results of the verification are
reviewed by the Supervising
Insurance Specialist and passed
upon by Chief Insurance
Specialist
Transmittal letter
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Minimum Verification
Procedures (for IC
examiners)
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1 3 5
2 4 6
8 10
Prepare the schedule of Computation of Arrange the verification folder together with the
Compliances with the following following:
requirements of CL201641: a. Copy of transmittal letter and other
a. Section 1.2 Deposit Requirements correspondence between IC and the company
b. Section 1.3 Risk-Based b. Working Balance Sheet, Summary of
Capitalization UANLL, Schedule of CC and Summary of
c. Section 1.4 Net Worth Requirement adjustments.
d. Section 1.4 Liquidity Requirement c. Supporting documents of Assets, Liabilities
and Net Worth
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Thank
You!