Should Premium Audits Be Allowed During Policy Period?
I received this question last week on premium audits. I know that an insurance carrier comes in after a Workers Comp policy expires. We just signed on with a new carrier two months ago. They now want to come in and audit the payroll during the policy period. Do they think we are up to something or do not trust us? Can they audit us while the policy is in force? Can the carrier come in and audit us again when the policy expires?
I would not worry that a premium audit during a policy indicates that an insurance carrier does not trust your business. If they did not, you would have likely not made it past their underwriting department.
For example, a carrier may audit during a policy if your company is/has:
- Newly formed
- Operating under new ownership
- The first year of coverage with a new carrier (likely the reason in this case)
- Your company has changed some of its operations
- A temporary employment agency
The carrier may come in again after the same policy expires to perform an additional audit. One area that I am in disagreement with the insurance carriers is multiple audits during a policy period or after a policy expires. If you feel that the carrier is being abusive with multiple audits, you should contact your state’s rating bureau or department of insurance.
One of the most concise and best examples is from the NJ Compensation Insurance Rating Bureau. New Jersey has it own rating bureau and has written its own rating manual. They do not use the NCCI manual or rules. The rule for audits reads as follows:
You will let us examine and audit all your records that relate to this policy. These records include ledgers, journals, registers, vouchers, contracts, tax reports, payroll and disbursement records, and programs for storing and retrieving data. We may conduct the audits during regular business hours during the policy period and within three years after the policy period ends. Information developed by audit will be used to determine final premium. Insurance rate service organizations have the same rights we have under this provision.
The premium audit rules are very similar for NCCI-rated states and other state rating bureaus. One of the unwritten rules is the premium audits should be at the convenience of the employer. Most carrier premium auditors will have not have a problem with rescheduling an audit.
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One Response
Service or interim audits done during the policy period are great if you are honest and have nothing to hide. There is no premium money on the table at that time unlike the annual audit. The auditor will look at your operation, records, and will answer any questions you may have. Feel free to pick their brains using open ended questions.
What deductions are available to me that I am not currently taking advantage of (such as overtime, severance, payroll separation between 2 or more codes, accounting records, etc)? Am I in the right class code for this state and the others that I operate from? Are there any changes coming up that may affect my business, etc?
Use them as a resource, and contact them with any questions during the remainder of the year. This will minimize any surprises when they return for the annual audit after the policy has expired.
If your not honest, then it will not go well for you. Thank You, CG