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Auditing Workers Compensation Policies – Main Errors Discovered

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Main Errors – Auditing Workers Compensation Policies

Auditing workers compensation policies involves many steps.  

Picture Word Game Magnifying glass auditing Workers Compensation Policies terms
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We have examined a large number of Workers Compensation policies in our existence. We find errors auditing at least 50% of the time. The most common errors that we have seen are (in order from most common to least):

  • Over-reserving or not closing files timely (see previous post on Total Incurred)
  • Employees misclassified into the wrong classification code
  • Governing classification code wrong – very expensive
  • Subcontractors classified as employees
  • Wrong payroll items counted as Workers Comp remuneration
  • Two or more distinct businesses classified as one business

When you are auditing your Workers Comp insurance policies and loss runs, please remember that there are 130 variables that go into a claim, and there are 34 steps to taking the Total Incurred and converting them into your E-Mod or X-Mod.

Hand Presenting Auditing Workers Compensation Policies Concept
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Then, there are approximately 1o more steps once you have your Experience Mod to calculating your premium. As each of the variables feed into each other, you can multiply them to see what a chance of error would be for a given Work Comp policy.

130 * 34 * 10 = 44,200

Hold on, though as that is for one claim figuring into your premium. If you have 20 open claims, then you would multiply 44,200 * 20 = 884,000

So, there are 884,000 calculations or variables that must all be correct for you to pay your correct premium. Are you still willing to just write a check to the Workers Compensation insurance carrier?

I wrote about the Self-Insured Phenomenon yesterday. At this point, if you are self-insured, are you thinking that you’re OUT of this type of system? The actuary that sets your LDF’s or Loss Development Factors has as many variables and combos to examine. If you are self-insured, then the number of open claims may possibly be even higher.

I will talk about each of the above errors in auditing workers compensation policies over the next few days. Notice how many times the word Classification is in the above list.

 
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James Moore

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications

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