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Premium Audit Workpapers Can Save Future Headaches

October 21, 2014 By JL Risk Management Consultants

Premium Audit Workpapers Are Golden

The premium audit workpapers can be one of the easiest methods to document your yearly WC premium audit. The workpapers are prepared by the premium auditor.

They can be either hand-written or computerized, showing how the auditor arrived at the payroll numbers that are used to determine the audited premium.

We always recommend that any employer ask for a copy of the workpapers before the premium auditor leaves your premises Even if you agree with the audit, these documents can become very elusive as time passes.

A large amount of confusion can be eliminated with the premium audit workpapers even if they are computerized or multiple Excel (R) worksheets. The best workpapers are spreadsheets that are emailed by the auditor. This allows you to analyze the premium audit without having to input all of the data.

Workpapers are the most often set of missing documents when our clients provide us with requested information. Asking for them at every premium audit conclusion may save you time, money, and headaches in the future.

Audit checklists may also be beneficial. The auditor will sometimes have a standard checklist they go through for every premium audit. The checklist can be thought of as a map of your premium audit. Many sets of audit workpapers are electronic. In that case, you can ask for a copy of the electronic file such as the aforementioned spreadsheets.

You do have the right as the employer to be provided with a copy. We have rarely seen where an auditor will not comply with the request for workpapers. If an auditor refuses the request, this should raise a red flag with you.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Audit Workpapers, Excel, Premium audit Tagged With: payroll, premium audit, premium auditor

Estimated Premium Audits For Non Compliance – A Very Expensive Proposition

October 23, 2013 By JL Risk Management Consultants

Estimated Premium Audits Not Sound Judgement By Employer

Estimated Premium Audits for non compliance costs many employers dearly. Premium audit bills and notices generate most of the calls and emails we receive on a consistent basis. The first question that is asked usually concerns allowing the premium auditor to examine their books. The issue of privacy comes up often with the numerous reports on the NSA.

The best way to pay what your company rightfully owes (and not a dollar more) is to be prepared for your audit. The best way to do this is to have everything in the initial premium audit letter available to the auditor. Spreadsheets that summarize the payroll records can be helpful. Being organized is the key.

The rules for audits are usually in your policy. Most states allow the auditor to TRIPLE your estimated audit. The key here is “estimated.” What constitutes estimated an estimated premium audit amount? The rules allow much of your final estimated premium audit bill to be up to the premium auditor. This is the person you have ignored for a number of week or months.

We have seen estimated audit bills where the premiums were five to eight times the normal premium. As I mentioned in the last paragraph, your company is leaving much to the premium auditor when an audit is not allowed by rule.

The only way to actually reduce an estimated premium audit bill is to allow the audit that was going to occur in the first place, except now your company has a big, tall red flag on the information you will be providing to the auditor.

If, after the premium audit, you feel there is something wrong, you may dispute the audit figures. We have never assisted any employer in how to present the figures to a premium auditor.

There is a very large group of articles on this blog in reference to premium audits that you can read for free. You may print them out as needed.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: auditor, dispute, estimated, Premium audit Tagged With: NSA, payroll, premium auditor, record, red flag, spreadsheet

What Workers Comp Publications Do I Read? – Some Secret, Some Not

June 21, 2013 By JL Risk Management Consultants

Workers Comp Publications That I Use For Ideas

I have often been asked during presentations and in general conversations on what Workers Comp publications do I read to produce the blog?

Most of the blog is original content, with no advertising from any source. Yes, most of the blog is done for content so that organic (not paid) web searchers will find the blog and call or email us. The main reason is inform the general public and employers on why WC should be one of their main foci.

Interesting enough, I sometimes “beat up” on premium audits and auditors, actuaries, adjusters, risk managers, and other insurance personnel. However, the insurance community is a large portion of the audience that reads this blog. I was trained originally as an all line adjuster then switched to Workers Comp many years ago.

One of the main suggestions that I would make is to not try to remember to go to these websites each day or week. Have them emailed to you to a private email. Why do I say private email? Business email services are famous for considering the emails spam, even though they contain valuable information.

There are other websites and publications on Workers Comp. These are the ones that I read on at least a weekly basis. I am quite reticent to reveal the materials that I read, but here I go (There are links to each publication except for the LinkedIn Groups as they require a logon):

Workers Comp Analysis Group on LinkedIn. Mark Walls has performed at a very high level to host the group. If you own a WC business and you are not adding into the conversations, you should be ashamed of yourself, no really, you should. If you do not have your LinkedIn profile 100% completed, you are running far behind. Seeing the opinions of the WC world workers is golden to me.
WorkCompCentral – Dave’s publication is one of the best. You can get a free subscription to just the news articles of the day in summary form, for not just CA, but nationwide. They have used a few of my articles in their columns section. Jim Sams and all of their reporters are top-notch. They also have a great LinkedIn group.
Business Insurance – there are so many areas in this one that will apply to your corner of the world. Robert Ciseneros’s columns are great. You can have them emailed to you by subject matter.
Insurance Journal – very similar to Business Insurance’s breadth and depth on many articles. Just reading the article comments makes it work reading. They will email you articles on your certain interest. Their main article email is great.
Claims Journal – one of the better claims-based websites.
Risk and Insurance – another great publication, also has great LinkedIn group.
A.M. Best – a great website from the insurance rating providers
NCCI and WCIRB – the two main rating bureaus have great information. Most of the info provided is for E-Mods and X-Mods and analyses.
Workers Compensation Research Institute (WCRI) – one of the better non-rating bureau research websites. Their studies are very thorough. They offered a free report in this blog two weeks ago on medical costs.
Other LinkedIn groups – I am on the following LinkedIn groups. I do not follow all of them every day.
- AuditBible
- Bright Ideas & Entrepreneurs
- Business Forecasting, Planning and Analysis
- Business Intelligence
- CAI – Capital Associated Industries
- California Coalition on Workers’ Compensation (CCWC)
- California Self-Insurers Association
- California Workers’ Comp. Professionals
- California Workers’ Compensation & Risk Conference
- Captive Insurance and Risk Retention Group Network
- Connected Professionals Chapel Hill – Durham NC
- Consultants Network
- FEDERAL BIZ Network – Government Stimulus Teaming Jobs PMI Consulting Funding Sales Opportunities
- Gmail Users
- HireInsurancePros.com
- How To Save Big On Workers’ Compensation Insurance
- ICMS-Medical Case Management Professionals
- IIR’s Workplace Community
- Insurance Auditor’s Association of the Southwest
- Insurance Claims Professionals
- Insurance Training and Education
- Leadership Think Tank
- LinkedSEO
- Linking NC: Charlotte, Raleigh, RDU, Greensboro, Ashville, Wilmington and surrounding areas
- Linking the Triangle
- LTCompSolutions
- Medicare and Medicaid Compliance
- National Workers’ Compensation and Disability Conference & Expo SUBGROUP
- National Workers’ Compensation Coalition
- Ohio Workers’ Compensation Forum
- Premium Audit Professionals Network
- Premium Audit Review Consultants
- Professionals In Workers’ Compensation Southern California Chapter
- Property & Casualty Network
- Raleigh Entrepreneurs Organization
- Risk & Insurance®
- Risk Management & Insurance Professionals
- Search Engine Land
- Tech Plus
- Tennessee Claims Association
- The California Workers’ Comp Forum
- The Texas Workers’ Comp Forum
- Underwriting SUBGROUP
- WORK COMP ANALYSIS GROUP
- Work Comp Cost Management
- WORK COMP Insurance, TPA, Self-Insured, State and Municipal Government Professional Network
- WorkCompCentral
- Workers Compensation Cost Containment Professional Network
- Workers Compensation Roundtable

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: LinkedIn, WorkCompCentral Tagged With: actuary, adjuster, advertising, blog, email, insurance personnel, premium auditor, publications, risk manager

Premium Audit Result Is The Final Workers Comp Policy Bill

April 11, 2013 By JL Risk Management Consultants

Final Workers Comp Policy Bill Comes From The Premium Audit

The final Workers Comp Policy bill results directly from premium audit. I received a question late last night on the last article I wrote on Deposit Premium. The question – (paraphrased) was:

We paid a very large deposit premium upfront January 2012. We have not heard from the insurance carrier except to renew our current policy for 2013. Should we be expecting a call or letter from our carrier’s premium auditor? Was the deposit premium for 2012 adequate? Should we be doing something on our end?

If your company has paid all premiums requested by your carrier, then you have not really done anything that would violate your 2012 or 2013 policy. April is a little late for a policy that expired in December 2012. Your final policy premium should never be considered as the deposit premium with your new policy.

Most states do have some type of rules on when policies can be audited by the carrier. If you look in your policy, in usually the last few pages, you will find your carrier’s premium audit rules. Most of the time it will have a passage or two on your responsibilities for your final premium audit.

You may want to check your incoming letters. We have seen a very large carrier in the mid-Atlantic states send out a large amount of marketing materials – sometimes two or three times a month. A letter with a follow up letter was sent out by the carrier from the audit department. The client employer actually thought it was marketing material and threw them out each time.

Their first notice was a 10 day notice to cancel their current policy for not abiding by the premium audit rules for the prior policy. With our assistance, the situation was straightened out in the nick of time and coverage cancellation was avoided.

A good suggestion is to have someone responsible for any (not just Workers Comp) insurance mail. Do not assume that your agent is receiving carbon copies of all of the mail from your carrier. The designated person should bring any of these items to the attention of management:

Endorsements
Changes to premiums
Bills
Policies
Notices
Audit results
Audit bills

If you feel your company may be owed a refund, then you may want to reach out to the carrier. As post-audit policy refunds are becoming more rare, that is a decision you may want to weigh heavily. All Workers Comp policies require responses, not initial contact.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: audit bill, cancellation, deposit premium, endorsement, policies, Premium audit Tagged With: insurance carrier, mid-Atlantic, policy, premium auditor, rules

Workers Compensation Deposit Premium Has Very Little To Do With The Final Bill

April 10, 2013 By JL Risk Management Consultants

Workers Compensation Deposit Premium <> Final Policy Bill

We are starting to notice a trend between your company’s initial deposit premium and the final premium audit bill. The deposit premium is just that – a deposit to bind coverage. We hear from many company owners and risk managers that what they expected to pay for the year is quite different – causing a budget shortfall.

There are many reasons for the final premium not being what your company has expected to pay for Workers Comp coverage for the policy year. Some of the reasons are:

Congratulations – your company has grown which in turn is going to increase your premium proportionally. When you signed on with a carrier, you may not have expected such growth, which actually increases all variable expenses.

Take the Mod into account – your E-Mod or X-Mod may have been higher than you expected overall. If your company grew, the Mod is not going to decrease substantially.

Along with the previous bullet point, you may have had a bad claims year up to four years ago. This is going to cause your company to pay more than expected if the company grows quickly.

Your business is reclassified – there may have been changes to your business operations. There is a caveat with this one. There are very specific rules on how your business may be reclassified during the policy period.

Your safety program needs improvement. This would be the most popular problem with sharply increasing premiums. NCCI has added in a new penalty of sort if you have repetitive accidents. All the other rating bureaus have a built-in penalty if you have multiple accidents regardless of the size of the claims.

Your company may start operating in multi-state jurisdictions or operate near a navigable waterway. These two situations can cause a large jump in final premium.

“The good quote” by the agent is just a quote – not what you are going to pay after the premium auditor is finished after policy expiry.

Another caveat (I use that word often), is to never start a dispute unless you know the basis for why you are disputing your final bill. Exclaiming that you just feel that your company paid too much often ends up with your company having an even larger premium bill. I have a file on my desk right now that is proof positive of this situation.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Agent, deposit premium, E-Mod X-Mod, Mod, NCCI, reclassified, X-Mod Tagged With: jurisdiction, premium auditor, premium bill, safety program

Workers Comp Premium Auditor Fraud Is Hard To Detect

March 7, 2013 By JL Risk Management Consultants

Workers Comp Premium Auditor Fraud

Workers Comp premium auditor fraud is very hard to detect. The auditors possess such a high level of fiduciary responsibility as they review millions of dollars in premium every week. This fiduciary responsibility came to light with the recent West Virginia case.

A Brickstreet premium auditor had been charged last month with numerous counts of insurance and coal-related fraud. The auditor allegedly received kickbacks from employment agencies that provided workers for the coal industry.

How does a workers comp insurance carrier avoid this situation? Insurance premium audit fraud is very hard to detect as there is a level of trust that the carrier or auditing company must have for their auditors.

The likely way to discover this rare type of fraud would likely be internal auditors better known as “auditing the auditor.” Brickstreet should really not shoulder too much of the blame. It was their employee. However, the only way that this could ever be detected is through internal audit.

Most insurance carriers have an internal audit department. Almost all of them do not audit workers comp auditors. This may now change somewhat with the recent West Virginia case.

The majority of these audits are performed in person. How can an internal auditor know their field premium audits are accurate without having to re-visit most of the employers? The West Virginia case was even more difficult as the companies is question were employment agencies.

Employment agencies are very difficult companies in which to determine the proper premium as there are so many classification codes. Their E-Mod rating and premium audit sheets can look similar to a novelette.

Workers Comp claim departments are audited by many different entities including their internal audit departments. Premium audit departments may receive the same scrutiny in the near future.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Brickstreet, fraud, Premium audit, Premium Auditor Fraud, West Virginia Tagged With: coal industry, employment agencies, fiduciary, kickbacks, premium auditor

Premium Audit Question on Audit Workpapers

November 8, 2012 By JL Risk Management Consultants

Premium Audit Workpapers – No Harm To Ask For Them

Premium audit workpapers are one of the audit items that are seldom provided to employers. I have also seen them provided to employers with the audit results or at the time of the premium audit bill. Along those lines, I received this question last week.

Is it a requirement that the premium auditor provide our company with a copy of the audit workpapers?

I think we should first start off with the definition of the premium audit workpapers. They are handwritten or computerized step-by-step background notes of how the auditor calculated the premium during an audit. I have also seen a computerized or handwritten checklist, especially in California.

The auditor will usually record each step of their audit as justification of why they changed any of the payroll amounts. The audit workpapers are usually very organized and easy to read. It is a good place to review if there are questions on any part of the premium audit.

The premium auditor is actually required in most states to provide the employer with a copy of the workpapers. Paying for an audit without the workpapers would be similar to paying an electric bill without knowing how much energy was used by your company.

It is always a good idea to ask for them if the auditor did not leave the workpapers behind on a recent audit. An email to the auditor or your agent asking for the workpapers will usually result in your company being provided with a copy very quickly.

Once you have received the workpapers, it may be a good idea to scan over them to see how the auditor calculated your final premium bill. The workpapers should not really be that lengthy unless your company is very large, has many locations in multiple states, or is a temporary employment agency.

If, after reviewing the workpapers, you feel that your company was overcharged, you may want to contact a premium audit expert company such as J&L. The main thing is to not just write out premium checks if you do not understand the justification for the charges.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Audit Workpapers, premium, Premium audit, Premium Auditor, premium bill Tagged With: computerized, handwritten, justification, payroll, premium auditor

How Is My E-Mod or X-Mod Calculated?

August 21, 2012 By JL Risk Management Consultants

E-Mod or X-Mod Calculated

My E-Mod or X-Mod how it is calculated? X-Mod / E-Mod questions are becoming the most popular questions that I receive in person or by email. The new E-Mod rules published by NCCI have quite a few companies concerned over whether they will be paying more premiums even though there was no increase in their incident rate.

Picture of Calculator With Pen Calculating E-Mod or X-Mod NCCI

My last post discussed the E-Mod formula in its rawest form. The more complicated and complete formula is here. I always recommend on not delving into the minutia of the E-Mod (X-Mod) formula.

The main variables that will affect your Mod are:

Number of accidents – having a large number of reported accidents will increase the Mod more dramatically than any other type of occurrence. The E-Mod (X-Mod) system was built around heavily penalizing employers with a large number of accidents when compared to similar companies
Drop in payroll – this is a more common variable than a few years ago. The risk of accidents being spread over a smaller amount of payroll will indirectly increase the E-Mod. As with most financial situations, smaller employers pay more for the same coverage than larger employers
Classification Code change – NCCI and the state rating bureaus have changed a number of class codes since 2006. Some class codes are actually less expensive while others have increased somewhat.
Claims staffs are now smaller – the reduction in size means less claims adjusters to handle the Workers Comp claims. Claims that are examined less tend to have higher reserves – that is the nature of the business
Premium auditors are overworked – as with the claims departments, auditors are being asked to cover more territory and or more employers. Having a brief claims audit can lead to overcharges.
Upcoming NCCI Changes – there are many articles that I had written a few months ago on how the primary loss portion of the claims are going to double in 2013. Employers with E-Mods of 1.2 are going to see increases in E-mods and premiums. There are more increases for 2014 and 2015 which is going to increase the E-Mod even more if you are a higher risk employer.
Employers have reduced safety departments – the best way to have a lower E-Mod and pay less premiums is to prevent an accident from occurring. Due to our present economy employers have been reducing their safety departments with some completely eliminating them. Reducing the size of a safety department can end up costing an employer for up to four years.

The bottom line is to not worry about the E-Mod (X-Mod) calculation. It is more cost effective to worry about the inputs to the formula.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: E-Mod X-Mod Tagged With: claims staff, drop in payroll, number of accidents, premium auditor, safety department, work comp class code

Preparing For A Workers Comp Audit – Seven Suggestions

May 15, 2012 By JL Risk Management Consultants

Seven Suggestions – Workers Comp Audit

I wrote seven suggestions for a Workers Comp Audit. I have read many guides, manuals, and blogs on how to prepare for a Workers Compensation premium audit. Some of the suggestions were borderline, if not completely illegal. As this story on fraud points out, trying to manipulate the premium audit will only end up costing your company.

My main recommendations are:

Have everything organized with spreadsheets. Premium auditors are under a time pressure. The easier you can make their audit process, the better the results. Handing the auditor a pile of unorganized papers or computer files is never a good idea.
Follow the audit letter to the nth degree. The premium auditor will send a letter a few weeks before the audit spelling out everything needed for the audit.
Having someone that is very familiar with your company assist the auditor is advisable. Assign this person to answer ALL of the auditor’s questions and to obtain additional information requested by the auditor. Nothing good has ever come of having many different people meet with the auditor.
This is a debatable point – there is no requirement that the auditor can leave the premises with copies of any records.
Ask the auditor to leave a copy of his/her workpapers and background info on the audit. This material is very important if you have questions when the premium audit report and bill is provided by the carrier.
As with any audit, it is best not to argue with the auditor. There is a dispute process if you disagree with the final results.
Read your Workers Comp policy. This will often answer many questions and clear up any confusion about the audit results.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: premium audit workpapers policy Tagged With: audit letter, premium auditor, record, spreadsheet

Premium Audits And The Short Rate Penalty Workers Comp Extreme Premium Charge

March 28, 2012 By JL Risk Management Consultants

The Short Rate Penalty And Premium Audits

The short rate penalty is one of the most severe penalties that your company can receive in Workers Compensation. With a short rate penalty, workers comp carriers accelerate the premiums on a policy beyond a pro rata share of the total annual premium.

I recently had discussions with two of our clients who were switching or wanted to switch to a new carrier for Workers Comp coverage mid-policy.

The short rate penalty was originally designed to keep employers from frequently changing carriers. If the changes were allowed, the E-Mod and basically the entire Workers Comp system would grind to a halt. The paperwork nightmare would be profound.

The disadvantage to the carrier is they could be left holding the bag on bad loss development without ever being able to recover the necessary premiums. The short rate penalty heavily discourages an insured from switching carriers until the policy renewal.

I really do not see this as unfair to employers. There is, however, one area where, in my opinion, short rate penalties should be waived without hesitation.

Workers comp premium audits are usually performed on an expiring policy within two months after policy expiration, if not earlier. If your company has already renewed with the same carrier, then you will be in month two or three of your new policy with this Workers Comp carrier.

As your expired and new policy states, the exact premium that you will pay for your policies are not final until audit is performed on your expiring policy. If you disagree with the way the premium auditor has determined your final premium and want out of your new policy, the short rate penalty will make you end up paying a very steep penalty.

Your company is now stuck with:

A premium audit with which you vehemently disagree
The renewal policy where the same issues will raise their ugly head at the next premium audit
A severe short rate penalty if you want out of the new policy
No time to find a new policy quickly
A new carrier will be concerned that you may want to jump ship in the middle of their policy if they provide you with one.
All parties (premium auditor, carrier, agent, etc.) are all unhappy with your company for wanting to switch mid-policy
The earlier you cancel – the more pro-rata your company will pay.
The carrier already has your $ if you paid it all upfront. As I said in this post, you lose leverage when the carrier has your $.

If your company wants to switch carriers early in a policy, your company will pay a hefty fee – up to 90% in certain states for extremely early policy cancellations.

How do you avoid this situation? Check back here tomorrow for more on the short rate penalty.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Short Rate Penalty Policy Cancellation Tagged With: premium audit bill, premium auditor, Workers Comp

Classification Codes 8810 and 8742 Revisited Again

May 18, 2011 By JL Risk Management Consultants

Classification Codes 8810 and 8742

My posts on Classification Codes 8810 and 8742 seem to generate the most interest of the whole blog. I have posted on them often. They both are referred to as Standard Exception Codes. They differ greatly from your company’s Governing Class Code.

I had posted previously on the premium auditors all knowing that companies tend to try to put every employee into those classifications to save money. That is one of the first figures a premium auditor will examine is what payroll is allocated to any of the Standard Exception codes. They especially look very hard at Class Codes 8810 and 8742.

One of the trends to watch for in your premium audits and associated billing is when employees are moved from one Standard Exception Code to another Standard Exception Code that results in a higher premium owed figure. That may not seem much of a difference on paper. However, some of the alternate Standard Exception Codes can result in up to a 76% increase in premiums for certain employees.

I will cover the new Standard Exceptions codes in an upcoming post. My best advice now is to make sure that your job descriptions are very thorough. I would not leave any questions on the job duties of especially your clerical employees.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: classification code Tagged With: blog, governing class code, premium auditor, Standard Exception Codes

Disclaimer

January 7, 2011 By JL Risk Management Consultants

Term Of The Day – Disclaimer

A Disclaimer flags an incomplete audit. An accountant or auditor’s statement which says the required audit was not complete. The statement may have been issued because the auditor has not received all the pertinent information to do all of the required audit work. Because the audit is not complete an opinion cannot be formed as to the accuracy of the audit outcome.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Term Of The Day - Disclaimer Tagged With: accountant, premium auditor

10 Workers Comp End Of Year Strategies Part 1

October 17, 2010 By JL Risk Management Consultants

Workers Comp Year Strategies End

These are the Workers Comp year strategies first five.If your company’s Workers Comp policies renew on January 1, there are at least 10 strategies to implement to cut your costs. The first five are

Your E-Mod is already set in stone with very few exceptions. The E-Mod was pegged many weeks ago. A reserve review is a waste of time at this point. Search for my posts on Unit Stat Date.
There are many options to a regular Workers Comp policy. Organizations of any size have many choices such as PEO’s, self insurance, self insurance pools, small or large deductibles to name just a few. I have posted on this often.
The Workers Comp premium auditor will audit your policy from 1/15/11 to 3/1/11. Make sure that your records are in order, especially if your company uses sub-contractors.
Talk with your agent about extending your policy renewal date for one month or more. Agents drown from 12/15 to 12/31 of each year. Your company will get much better service by not having a 1/1 renewal date.
If your company is going to work in other states, make sure that your policies cover your employees when they work in each state. If an employee tries to file a claim in a different state than your home office and your company does not have coverage, things could get a little messy. I have seen insurance companies deny coverage for a company not having paid premiums in a certain state.

I will post 6 – 10 in my next post

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Workers Comp Strategies Tagged With: E-Mod, PEO, premium auditor, renewal

Audit Workpapers – Are They Important To Employers?

May 13, 2010 By JL Risk Management Consultants

Audit Workpapers Are Important To Employers In All Cases

The Audit Workpapers are important to your Workers Comp premium reduction program. Worksheets prepared by the Workers Comp premium auditor, can be either hand-written or computerized, showing how the auditor arrived at the payroll numbers that are used to determine the audited premium.

As the insured, you have the right to see all of your premium auditor’s workpapers including if any checklist is used by the auditor. Almost all workpapers are presently computerized and usually in spreadsheet form.

Many times the workpapers answer most of the questions that an employer has concerning the just-completed workers compensation audit.

Most auditors use a template provided by the insurance carrier of freehand them on Excel (r). J&L Risk Management always requests the documents from employers if we help them review their premium audits.

Employers should request the workpapers from the premium auditor immediately if none were left at the conclusion of the audit. This request should be in writing, preferably email. See the premium auditor Term of the Day (c) for more info on interacting with the auditor.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Audit Workpapers Tagged With: premium auditor

Workers Comp Subcontractors Jurisdiction Question

March 27, 2010 By JL Risk Management Consultants

Workers Comp Subcontractors Jurisdiction

A question asked by a peer always draws my attention. I received this question from one of my peers in the Workers Comp world.

A client of ours uses subcontractors as a part of their construction contracts. The subcontractors have provided valid certificates on insurance for Workers Comp coverage for any of their employees. The subcontractors sometimes cross state lines into another state to take materials to a landfill and to pick up materials.

The premium auditor has billed the client for a large sum of $ as they have said that part of the job involves another state that is not on the certificates of insurance. Can the carrier charge the client premium for their subcontractors as they are operating out of state for part of their job? Who would have the responsibility if a claim was filed in the other state if there was an injury?

I will answer this in two parts – one today and one tomorrow. There are many variables to examine to see if the premium should be charged to the client or to the subcontractors. If there are no out of state provisions on the certificates of insurance then a premium auditor will charge the main contractor for Workers Compensation insurance in another state. I am not inferring that the auditor would be correct, but one could not fault them for adding in a risk premium.

However, there are many particulars such as in which state the certificates cover and what state are they crossing over into to dump and obtain materials. This is definitely one for a premium review for the employer.

I will address what would likely happen if there was an injury in the non-covered state. Trucking companies have to address this very often. We have to thank Mr. Walsh for the next post.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Subcontractors Jurisdiction Tagged With: construction, premium auditor, variable

I Have Heard From A Few Premium Auditors

May 3, 2009 By JL Risk Management Consultants

Workers Comp Audit – Premium Auditors

The premium auditors emailed me a few times on their disbelief of my last article. My last post discussed two employers being audited for a total of 23 years by their Workers Comp carrier. I am not faulting any certain auditor, but more of the insurance environment that is in place now. I have seen two or three auditors that should not be doing premium audits. I have also seen a few workers compensation adjusters that should not have been handling claims. For the most part, auditors and adjusters are very hard working people.

My main point is that there are audit rules that must be followed to the letter by employers. The NCCI and each state have come up with very specific workers comp audit rules. Insurance companies should have to follow the same work comp audit rules. Going back 15 years and try to perform audits and collect in California is just not legal. California has a very short look-back period on audits.

I will post tomorrow on Professional Employment Organization (PEO’s). With the economy in a downturn, the prevalence of PEO’s are increasing dramatically as they have in bad economies in the past.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Workers Comp Audit Rules Tagged With: NCCI, PEO, premium auditor

Two Employers Are Having 23 Years of Workers Comp Premium Audits

May 1, 2009 By JL Risk Management Consultants

Workers Comp Insurance Carrier – Two Employers = 23 years of premium audits

Two employers are suffering through 23 years of Workers Comp premium audits. These are sad but true cases of where two Workers Comp Insurance carriers are trying to audit their clients a total of 23 years in the past. One of the employers has already been audited twice per year for eight years, but that is not good enough for the insurance carrier. The other employer is having audit requests going back 15 years. This is becoming more prevalent as workers comp insurance carriers are trying to increase their intake of premiums without having to incur any more risk.

Did these two employers do anything wrong? No, as they allowed the premium auditors to go over their books each year. Do the insurance carriers have the right to re-audit or re-re-audit employers? The answer to both questions is an emphatic – no. The insurance carrier premium auditors get their one shot to audit premiums. After that, there is a little grey area, but insurance companies are not allowed to keep auditing the employers.

What can an employer do if there are multiple audits with requests for even more audits for the same year? If the insurance carrier threatens cancellation if they are not allowed another audit, the scenario can become very complicated.

I recommend:

Knowing or exploring your state’s Workers Comp audit rules
Writing a letter to the premium auditor advising them that they have already audited your company’s Workers Comp payroll and class codes
Contacting a premium expert
Complaining to your state’s insurance commissioner only as a last resort and/or if there is a pending cancellation

One of the caveats of this advice is the employer must have 100% cooperated with the premium auditor during the premium audit. I have posted previously on cooperating with the premium auditor. You may want to use the search box at the top right part of the web page or just scroll down until you find the information on what information a premium auditor can examine.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: There Is No Such Thing As Unlimited Premium Audits Tagged With: premium auditor, Workers Comp Carrier

What Is The One Thing That We Can Do To Harm Our Workers Comp Program?

April 25, 2009 By JL Risk Management Consultants

What One Mistake Would Harm Our Workers Comp Program?

What would cause the most harm to our Workers Comp program?

Picture of Hand Gun Gesture Computer Would Harm Workers Comp Program I received this question last week. This is one of the unasked questions that are always a concern of most employers. When we examine Workers Compensation insurance policies for employers, there is one area that I always see where large mistakes occur in the policy process. The mistake is just writing a check for a Workers Compensation bill – especially a Workers Comp audit bill – without even questioning how the insurance carrier or premium auditor calculated the amount. As I have mentioned in many blog postings previously, you must treat your insurance policy billing statements the same as a bank statement. If your company does not, then you are likely overpaying for Workers Comp coverage.

We just finished an audit where the employer wrote a check for over $50,000 because the insurance carrier sent them a bill. We found on this one, as we do many, that there were some miscalculations during the audit. The true bill ended up being less than $20,000. We do see this more often in recent times.

We recommend at least asking for backup documentation on how the Workers Comp policy or audit bill was calculated. There may be no errors. At least you can feel good about knowing that you at least reviewed the documentation that justifies the billing.

We usually say “Just Do Not Write A Check” as one of our mottoes we have mentioned in articles and previously in this blog post. At a time when every penny counts more than ever, make sure you feel 1,000% comfortable with writing the check. If not, start asking questions. You may be very surprised at the answers and the results for your company.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Stop Just Writing Checks Tagged With: insurance policy, premium audit, premium audit bill, premium auditor, Workers Comp Coverage

How Can I Question My Premium Audit Without Filing A Dispute?

March 29, 2009 By JL Risk Management Consultants

Can I Question My Premium Audit Without A Dispute?

How can I Question my premium audit without going through a formal dispute process?

This is a question that came in from a few of the blog readers over the last two weeks. Most Workers Compensation premium auditors are very reachable if you have questions about your audit. Calling or emailing them with a question does not violate any rules. I always recommend emailing the questions as premium auditors are very busy and are usually overloaded with audits on their schedule.

This is the main reason that we always advise our clients to ask for their Workers Comp audit workpapers that are filled out by the premium auditor. The workpapers can sometimes explain the thought process of the auditor. Filing a premium dispute is the last thing that should be done if your company simply has questions about the premium audit. There are a few premium auditors that only want premium disputes if you have a question. I do not understand why certain auditors require premium disputes. As I mentioned previously, emailed questions will usually suffice.

Emailing a question or disputing the fact that your premium audit bill just seems high may only muddy the waters as you need to be very specific in your questions. Then again, we see so many companies just writing a check when they receive a premium audit bill without even questioning the basis of how the premiums were calculated. The premium audit bill is like any other account balance. It should be reviewed thoroughly before any payments are made on the policy.

If you feel there is something wrong or are in over your head, please consult with a non-agent expert. I have posted very often that when CFO’s, Risk Managers, Owners, etc. have a gut feeling that something is wrong they are usually correct. Please do not just set the premium audit bill aside as there are time limits on making a payment or filing a dispute.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Emailing A Question May Avoid A Premium Dispute Tagged With: premium auditor, rules, workers comp premium audit bill, workpapers

Workers Comp Audit Workpapers – What Are They?

March 22, 2009 By JL Risk Management Consultants

Workers Comp Audit Workpapers

The Workers Comp Audit Workpapers are the auditor’s complete calculations that were created during the audit. They are very important to understand what calculations, payroll, and other information were used to produce the final calculations on the policy.

If you receive an audit billing, you can trace back to see the audit trail of the auditor. Some of the audit workpapers can be very complicated. Most audit workpapers are computer generated. There are a few workers comp auditors or audit companies that may still use paper forms to perform audits. There will very likely only be computer based audits very soon as this allows the auditor to share their findings much more easily.

We recommend NEVER paying a bill unless you fully understand the workers comp audit results. If you do not, the audit workpapers can sometimes easily point out how the bill was calculated. As I have said many times in this blog, the policy, policy audit, and anything to do with your Workers Comp policy should all be available to you as it is your Workers Comp policy that you are paying for with your company’s hard-earned money.

Most auditors will leave a copy of their audit workpapers with the employers when they do the audit. It may be a good idea to ask the workers comp auditor for a copy of their workpapers while they are performing the audit.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: The Workers Comp Audit Workpapers Are The Paper Trail Of Your Audit Tagged With: calculation, payroll, policy, premium auditor

A Workers Comp Estimated Premium Audit

March 20, 2009 By JL Risk Management Consultants

Estimated Premium Audit

Question from one of our readers – We just received an estimated Workers Comp premium audit and billing. Why did this happen?

Was the premium auditor able to make an appointment to perform the payroll audit? If not, the auditor only has so many days after a Workers Comp policy expires to perform the audit. The audit is estimated in order for the billing to be produced and mailed to you. If you wish to dispute the estimated premium audit, you must still pay any undisputed premiums by the due date on the audit billing. Do not ignore the estimated audit and bill. It could lead to cancellation of your policy.

Was the premium auditor able to access all the records they need to see to be able to perform the workers comp premium audit? The auditor has the right to see any of your records. I had posted on this a few weeks ago. If the auditor is not able to review the applicable records that you have in your possession, they will have no choice but to do an estimated audit and bill.

All of the rules on Workers Comp audits and the employer dispute process must be in your policy. Most states are very picky about what the insurance carrier includes in the policy. The insurance policy may be a boring read. I recommend it before signing any policies.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Workers Compensation Estimated Premium Audit Tagged With: due date, payroll audit, premium auditor

Employee Misclassification – Another Reader Question

February 27, 2009 By JL Risk Management Consultants

Employee Misclassification – Shareholders and Officers

Avoid Employee Misclassification in naming shareholders and officers.

I received another question on the pitfalls of misclassifying employees. In California, there was a company that had been advising employers to exploit a loophole in the labor code to avoid their workers comp obligations by classifying workers as shareholders and corporate officers.

In most states, shareholders and corporate officers are exempted from the remuneration (payroll) figures for employers. Giving a rank-and-file employee a position title such as Vice President or any executive title does not guarantee an automatic exemption. If any company gives you advice to try this method, please avoid them at all costs. This is very illegal. The company in California that was giving this advice is being pursued very heavily by the California Attorney General.

We would never advise a company to try this method. The Workers Comp premium auditor will catch this at the end of the policy year, so the advice to try this method is basically worthless. The only money earned by this method is the advisory company getting paid for useless advice.

As we have mentioned in the last two posts, there is nothing wrong with questioning or disputing the workers comp classification codes or anything else in an employer’s workers compensation policy or premium audit. This is allowed by your Workers Comp policy.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Employees As Officers or Shareholders Tagged With: corporate officer, premium auditor, shareholders

Two Types of Misclassification – One Bad and One Just Needs Repairing

February 24, 2009 By JL Risk Management Consultants

Types of Misclassification of Employee Status Not The Same As Wrong Classification Codes

Two types of misclassification of employeestatus- and they are not the same whatsoever.

We have received emails over the last few weeks concerning various Departments of Insurance pursuing employers for misclassifying employees in their Workers Comp policies. This is not to be confused with the misclassifying of employees as subcontractors.

The recent press releases about employers being fined large amounts of money for misclassifying employees are not the same as an employer questioning how their employees are classified. The states are pursuing employers that classify an employee as a subcontractor. The IRS has a list of rules that differentiate an employee from a subcontractor on their website. You may also use the search box in this blog and search for IRS. The link to the IRS article is in one of my prior blogs.

Your company always retains the right to dispute how your employees are classified in your Workers Comp policy. This means your company can dispute the premium audit that the premium auditor has prepared. Once again, disputing the premium audit or questioning the premium auditor’s work will never result in the Department of Insurance investigating your business practices.

In fact, your Workers Comp policies have included in them the right to dispute anything in the policy or audit. If you read the final pages of your policy it is in there. In fact, all states require the insurance carrier to include in the policy the dispute procedure in detail.

State Departments of Insurance are beginning to heavily pursue the misclassification of employees as subcontractors. Why? The employees are being removed from the Workers Compensation Insurance system and the tax system.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Misclassifying Employee Status Is Not Advisable Tagged With: department of insurance, IRS, premium auditor, Workers Comp policy

NOC – What Does That Mean?

January 26, 2009 By JL Risk Management Consultants

Workers Comp Rating Acronym NOC

NOC is an acronym you need to know. Another great question from one of the blog readers – We received our Workers Comp policy for this year. We noticed that all of our positions – Classification Codes have an NOC on the end of them. What does it mean?

NOC stands for Not Otherwise Classified. If you see this on a Workers Comp policy or premium audit, it means that the Classification Code is non-specific. There are usually more specific Class Codes, however, the underwriter or premium auditor could not place your business in any other Classification Codes other than the more general ones.

It is advisable that you look further into this general-type classifying of your business. You may find other classification codes that would describe your business more accurately.

For instance, Store Employees, NOC means that the classification of your employees could not be associated with a more specific code. This is one of the most common mistakes that we see on policies and audits by the insurance carriers. These Class Codes are much more expensive as the NOC Classification Codes are seen as more risky. The more specific Class Codes can be a more accurate assessment of the employees covered in the policy.

If your receive a policy or premium audit with Not Otherwise Classified on it, there could possibly be a more specific Class Code. The previous example could be more specific by using the Store: Clothing or Wearing Apparel Classification Code. This type of Class Code will always be less expensive than the NOC code.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: NOC = Not Otherwise Classified Classification Code Tagged With: premium auditor, underwriter, Workers Comp policy

Question on Premium Audit Bills – Insured Cannot Afford Unexpected Increase

September 14, 2008 By JL Risk Management Consultants

Workers Comp Question About Premium Audit Bills

An article reader recently emailed a question on the premium audit bills. When we were named “One of the Top 25 Blogs on Workers Compensation” last week, our blog has increased in popularity dramatically. The #1 Question that we have received from our increased web traffic is one that we have answered before a few times, but it is worth repeating.

The Question – We have just received our Workers Compensation billing from one year-end premium audit. The premium bill was 25% more than our original Workers Comp premium. We are not sure if we can pay the bill. We do not understand the basis of how the premium auditor came up with the figures. What can we do?

The first thing to do is to not pay the premium audit bill until you understand what the billing was based on by the premium auditor. Make sure that the complete audit bill is provided to you, including the audit workpapers. Review the bill very closely to see if it makes sense.

If the bill does not make sense, call or write the premium auditor with your questions. Often, the insurance carrier will say that you only have 10 days to pay the billing. This may not necessarily be true. If the premium billing is disputed, you may have up to 30 days to pay the bill. Do not use the dispute as a way to delay paying the bill.

One of my prior posts covers the “RED FLAGS” of Workers Comp audits. It may be good to look over that post. One of the main red flags is if there is a major change from your original policy.

If you are unsure of whether or not the premium audit bill is accurate, call in an expert. The best thing to do is not to just write a check if you have questions about your bill.

Attorney Guide: 101Attorney.com is an online attorney resource website that provides attorney news, attorney guide, attorney finder, etc.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Question On the Premium Audit Bill Tagged With: insurance carrier, premium auditor, red flag, Workers Comp billing

Readers Question on Workers Comp Payroll Audits

July 18, 2008 By JL Risk Management Consultants

Workers Comp Payroll Audits

Payroll audits can be stressful. I just received notice that the insurance company auditor is coming in to audit my company’s Workers Comp information. How do I prepare for the audit? What information do I have to provide them?

According to your insurance policy, the insurance company auditor has the right to examine almost any of the records that your company has available. If you refuse to show the insurance company auditor the information they need, that may look suspicious to the auditor.

There are a few things that one can do to get ready for the Workers Comp audit. The best thing to do is make sure that you have ACCURATE and highly organized payroll records together with a summary sheet of those payroll records. Make sure that all subcontractors and temporary workers are segregated on the payroll. Have someone that is the most familiar with the payroll records be available to answer any questions and provide any additional information that the auditor may request.

It is best to make sure that the auditor has a quiet place to work, away from the daily activities in your business day. There are many guides on how to try to influence the audit, but we do not agree with them as being upfront and honest are the two best ways to conduct yourself when the yearly Workers Comp audit occurs.

We have seen quite a few employers become part of a disturbing trend when it comes to the audits. We will discuss this on the next post- Delaying the Audit.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: Preparation Yearly Insurance Company Payroll Audits Tagged With: insurance policy, premium auditor

North Dakota Brings In Yet Another Auditor

May 30, 2008 By JL Risk Management Consultants

North Dakota Tries The Same Thing Again – Sort Of

North Dakota has now brought in another auditor. This time the auditor, from Maine, is supposed to come up with reasons why there is a surplus. There are two reasons for a surplus in a Workers Comp fund. They are:

Overcharging the fund members for their premiums
Denying benefits to claimants

The first one is obvious. You get a surplus because you have had your fund members pay out more money in premiums than were paid out in benefits. How do you fix this problem? You may reduce premium increases or add to the premium decreases to your members. Another way to remedy the situation is to return the premiums to the members as dividends.

One area that usually causes premium overcharges is the over-reserving of the Workers Comp claims. If the file has a huge reserve and only a small portion of the reserves are paid out in benefits, then the fund takes in too much $.

The second one was supposed to be addressed in a round of audits by a provider earlier this year to see if too many claims were denied. Unfortunately, to date, no actual data was produced by the auditing company on how many files were legitimately denied.

I do hope that the current auditor hired by North Dakota realizes the two very obvious reasons for a fund to have an excess in reserves. We shall see.

On a side note, did anyone notice that another one of their prior auditors is now refusing to talk to them or turn over data? Who is making the final decisions on what auditors to use? I will revisit North Dakota when the auditor produces some results.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: North Dakota Tagged With: excess premiums, premium auditor, premium overcharges

North Dakota WSI Ex-employee Sues His Former Employer

May 27, 2008 By JL Risk Management Consultants

North Dakota WSI Employee Brings Lawsuit

A North Dakota WSI ex-employee sues his former employer.
When reading the articles months ago about the WSI’s wholesale firing of some of their employees, one knew there would soon be lawsuits. Todd Flanagan, a former fraud investigator, filed his lawsuit in Bismarck asking for reinstatement and back pay.

There will be more lawsuits in the future, especially from the whistle blowers that pointed out many inequities in WSI’s way of doing business.

I will have another post tomorrow on North Dakota trying to figure out why they were in a crisis in Workers Comp ten years ago and now have a huge surplus. The answer is simple, but they are going to pay an auditor many thousands of dollars for the obvious answer.

North Dakota is one of the few states where a monopolistic State Fund runs the Workers Comp system. These monopolistic funds have run into great problems with some of the states such as West Virginia and Nevada privatizing their Workers Comp programs.

Up Next – Why Does North Dakota Have Such a Large Surplus in Their Workers Comp Fund?

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: North Dakota WSI Tagged With: monopolistic state fund, premium auditor, reinstatement

Your Workers Compensation Budget – Who Really Is In Charge?

August 27, 2007 By JL Risk Management Consultants

Workers Compensation Budget Comes From One Group

Who is in charge of your Workers Compensation budget that is 100% unregulated?

Is it your agent, underwriter, premium auditor, or insurance commissioner? No, not any one of those parties, as they are all under some type of regulation.The unregulated part of Workers’ Comp premiums is (drum roll) – your Work Comp insurance adjuster.

There is a long previous posting on Total Incurred. To not bore any one to tears, I left this part for today.Your insurance adjuster needs to be licensed in most states, but there is no regulation on the reserves/total incurred they set on your WC claims.

What are the guidelines for setting reserves on a WC claim? There are none. As I mentioned in the last post, whatever your total incurred is by the 180th day after your policy period expires is what you pay for your Workers Compensation premiums – plain and simple.

What do you do immediately to make sure you have no overcharges in your premiums?

Find your monthly or quarterly Workers Comp Loss Run from your insurance carrier and review it.
If you do not have one, request it ASAP.
Make sure that all claims that should be closed are closed.
If a total incurred or reserves look very large for the claim, email your adjuster.
Do you know who the adjuster is on every one of your claims?
Do you have a working relationship with that adjuster?
Do you have their email address?
If you feel you need further help, consult with a claims expert- we are claims and premium consultants. Please excuse the J&L Risk Mgmt ad.

If you answered No to #4 – #6, are you just writing checks to the agent or carrier? There is no need to just think of Workers’ Compensation as a fixed cost to doing business. There are more areas to reduce your premium, but this is the one that costs your company’s workers compensation budget the most.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Filed Under: adjuster, Agent, Claims Loss Runs, Reserves, Total Incurred Tagged With: agent, insurance commissioner, premium auditor, underwriter