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A premium audit is a pretty routine part of Workers Comp
insurance, so it's not as if your company is being
singled out if your insurer wants to schedule an audit
after the policy ends.
The fine print of the Workers Comp insurance policy
gives the insurer the right to insist on such an audit,
and it requires that the policyholder cooperate with
scheduling and making available needed documents and
information.
Sometimes there can be dramatic changes in premium based
on audit results, and not at all of these changes are
welcomed by insured employers.
Often these unwelcome changes are not truly correct and
legitimate, per the rules that govern Workers'
Compensation insurance. (AKA Workman's Comp or Workers
Comp.)
Self-serving errors by insurance companies are common.
But getting an insurance company to admit mistakes can
be challenging, and most policyholders are at a distinct
disadvantage in such disagreements.
Insurance company audit personnel often come across as
stubborn and unresponsive, leaving the employer
frustrated and feeling that the system is rigged.
One solution is to try and prevent errors from creeping
into audits in the first place.
To avoid premium audit mistakes that can create premium
overcharges in your company's Workers Compensation
insurance premium, A.I.M. recommends
that the following steps be taken:
Before The Audit
Before the premium auditor ever arrives, an employer
should decide who
will be the primary
contact person
for the auditor. This contact person should be someone
who is very familiar with the work done by all
departments and all employees, as well as someone
familiar with the payroll records the auditor will be
reviewing.
Review the original policy to see how the initial
estimated premium was calculated. Look at the
classification codes, rates, and payrolls used to
compute your initial premiums--the auditor will be
starting from this as well, but will not necessarily be
limited to using only the classifications listed on the
policy.
Also take a
look at the information about your company that is
readily available to the auditor, such as your company
website and
other online information.
Remember, it is likely the
auditor will be looking at this information in advance
of his or her visit to your offices. If there is any
information there that could be misleading or is out of
date regarding your operations or the nature of your
work, not only should you be correcting it, you should
also be prepared to clarify the changes with the
auditor.
You don't want incorrect, out-of-date, or misleading
information to cause the auditor to make decisions that
increase premiums improperly.
It's normally easier to
address such issues early rather than after the audit is
done, although it can be important to maintain a cordial
and professional relationship with the auditor while the
audit is being performed.
Incorrect or misleading information online can cause an
auditor to apply an incorrect classification and rate to
the audit, increasing premiums unnecessarily.
A premium auditor may well want to know information
about the specific job duties performed by a certain
department or by individual employees.
It is usually to
an employer's advantage to provide accurate and detailed
information to the auditor, because if the auditor has
to make assumptions about the exposures he or she may
well make worst-case assumptions that unnecessarily
increase your premium.
Have your designated contact person review prior years'
audit billing statements and prior auditor's workpapers
(if your company has requested these in the past.) This
will help your contact person understand the important
issues that will likely come up during the upcoming
audit.
Review your payroll documents to make sure that the
records will allow the auditor to readily break out overtime pay
and discount it back to straight time, as is allowed in
most (but not all) states' Workers' Compensation rules.
Remember, if the auditor cannot readily break out the
premium portion of overtime you will probably not get
this significant discount.
The auditor cannot take the time to perform complex
calculations to determine the premium portion of your
company's overtime pay, so make sure your payroll
records will allow the auditor to make the calculation
without undue effort.
If your
company uses subcontractors or independent contractors,
make sure you have on file certificates of insurance
documenting that these 1099 people have their own
Workers' Compensation insurance. If you don't have
certificates of insurance from them, but they did carry
their own Workers' Compensation insurance, make sure to
get certificates before the audit. Otherwise, your
company may be charged for this exposure.
Check the rules in your state regarding
opt-out provisions for sole proprietors or partners--in
some states the independent contractor you use may have
formally opted out of coverage requirements and you need
to let the auditor know about this, to avoid being
charged for the exposure.
Remember that most construction type companies can use
more than one classification code for their operations,
they can even divide the payroll of an individual
employee between classifications.
But the payroll
records must document the actual hours spent by such
employees in each of the different workplace exposures.
An estimate of time spent in each kind of exposure
will
not suffice.
If the payroll records do not document the
hours spent in each kind of work, all the employee's
payroll will go into the most expensive classification
applicable. It may not feel fair, but that's how the
rules are written.
When The Auditor Arrives
If at all possible, have a comfortable and well
illuminated work area available for her or him.
A.I.M.
recommends that, if at all possible, you do not have the
insurance auditor review your records off-premises (at
your accountant's office, for instance) because your
account may well not have the detailed information about
workplace exposures needed to qualify for some
less-expensive classifications.
If the audit must be
done off-premises, at least make sure a knowledgeable
person from your company is available by phone for the
auditor to talk to about such workplace questions.
Remember that the fine print of the policy gives the
insurance auditor the right to demand virtually any
document that might have a bearing on the premium
computation. So sometimes an auditor may want to review
tax filings and even tax returns, if the auditor thinks
these documents may shed light on the actual exposures
being audited.
Sometimes employers get indignant or confrontational
when these kinds of additional documents are requested. This
is almost always a mistake, as anything that
makes an auditor feel suspicious about whether or not
information is being withheld, will make the audit
process more involved (and likely more painful in terms
of time and effort on the part of the employer.)
The terms of the policy give the insurance company the
right to inspect and review almost any document that
could provide information relevant to determining
premium.
And all too often, a perceived lack of
cooperation on the part of the employer just makes the
auditors suspicious and all the more determined to
figure out what information is being hidden.
Our recommendation
is that employers cooperate as fully and cheerfully as
possible, and then review the auditor's
workpapers carefully after the audit is completed, to
identify any areas of possible dispute. But being
uncooperative during
the audit can
often backfire on
an employer, as auditors can and will fill in any blanks
with "worst case scenario" type estimates, and then the
onus is on the employer to prove that actual exposures
are lower.
When the auditor is finished, make sure to ask to be
sent a print out of the auditor's worksheets. This
document is not normally provided unless specifically
asked for, but if requested it will be provided without
problem.
These worksheets will provide you with a
roadmap for understanding how the audit was conducted,
how the final payroll numbers were derived and what
payroll was placed into which classification codes.
When requesting the printout of the auditor's
worksheets, make sure to designate who at your company
is to receive these documents, as they will contain
sensitive payroll information that you may want to keep
confidential.
After The Audit
When you receive the actual audit billing statement,
review it carefully and compare it to the original
policy. Check for the following
Normally, the experience modification factor should be
no higher on the audit than on the original policy;
Classification Codes on the audit should not include any
more expensive classifications that were not on the
original policy, unless there has been some change in
your company's operations since the policy began. The
ability of the insurance company to add more expensive
classifications at the time of the audit is limited in
many states (although the rules for construction related
work are more lenient on this point, generally allowing
such classification changes even at the audit.)
The Schedule Credit or Debit should not have changed
from the original policy. It your insurer has increased
premiums by changing the schedule debit or credit, you
may well have the basis for disputing
the additional premiums.
If you are unfamiliar with Workers Compensation
insurance, it can be a good idea to review the Basics of
how Workers Comp insurance premiums are calculated. And
you may want to study our Online
Guide for
more detailed information on elements of Workers
Compensation premiums, such as classifications and experience
modification factors. Also,
remember that the rules that govern Workers Comp premium
can vary from state
to state.
Please email: AIM@cutcomp.com or call
us at 800-288-9256 with
questions on audits,
classifications, experience modifiers, or
other aspects of Workers Comp premiums and audits.
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