How and Why Employers Often Overpay For
How and Why Employers Often Overpay For WorkersComp Insurance
Advanced Insurance Management has been finding and recovering overcharges in clients' Workers' Comp insurance premiums for the past 30 years.
But new prospective clients often ask us, how common can such overcharges be?
Aren't insurance agents and brokers usually catching such problems?
The system for computing Workers'
Compensation insurance premiums
is a complicated one,
involving interactions between
insurance agents, premium
auditors, underwriters, and of
course, the insured employer.
With so many players working with such a complicated system, errors are inevitable.
Consider that, within the NCCI classification system, there are around 600 different classifications (more like 2,000 when you add in all the state special classes.)
And the rules for applying those classifications are complex and sometimes counter-intuitive. And of course, they are subject to regular revision.
And some states don't use the NCCI system, but instead have their own classification systems.
So the right class for your business in one state might be wrong in another.
The fact that errors are common is born out by NCCI's own experience in performing what are called "Test Audits". This is a program where NCCI double-checks the premium computations of insurance companies on a spot-check kind of basis.
Error rates of 30% to 40% are reported in the handful of states that have a Test Audit program. But most states don't have a Test Audit program.
(And the NCCI test audit program doesn't even check all the parameters that an Advanced Insurance Management® review covers.)
So it's incumbent upon employers, the ones who ultimately pay for this system, to do what they can to protect themselves from such industry mistakes.
For it's been our experience that most of the mistakes we discover increase premium, rather than decreasing it.
It seems the insurance industry does a better job of catching and correcting those mistakes that serve to cost them money than fixing those that bring in additional income.
There's no sinister conspiracy at work here--at least, not that we've seen-- most insurance people are dedicated and ethical professionals.
But something seems to happen in the operation of the system, something that somehow takes on a life of its own, and causes mistakes that increase premiums to often go uncorrected.
That's why Advanced Insurance Management specializes in helping companies uncover those mistakes, and to recover overcharges that have occurred.
We're very experienced in finding and recovering premium overcharges that occur because of mistakes in classification, Experience Modification Factors, payroll audits, and other technical factors that can increase premiums improperly.
Sometimes, prospective clients tell us that they think their agent should provide such service, and that they expect that they are already receiving such service.
But we can only say that, if agents were catching all the mistakes that occur, we wouldn't be able to earn a living by specializing in catching and correcting them.
We don't blame agents for this.
Most agents are dedicated professionals who work hard to take care of their clients. But many of these technical mistakes that we find are just out of the hands of agents.
The system is set up in such a way that it's difficult, if not impossible, for agents to catch and correct many of the kinds of mistakes we find.
For instance, when it comes to determining proper classifications, most of the decision making is out of agents' hands.
That's handled by insurance company underwriters, the rating bureau, and premium auditors.
Agents have to rely on these other parts of the system to perform well, and agents often have very limited ability to influence decisions made by these others.
It reminds us of what Ronald Reagan said, years ago, about dealing with the Soviet Union in some treaty matter.
"Trust, but verify," he said, quoting an old Russian proverb.
It seems that, when it comes to Workers' Compensation premiums, that proverb could serve many employers well also.
We've been helping employers since 1987, making Advanced Insurance Management one of the oldest and most experienced firms in the field of premium recovery.