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Premium Audits During Policy Period

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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?

Blurry Picture Of Man Calculating Policy Period Concept
123RF

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.

Graphic Of Gavel With Carrier Liability Files Policy Period Concept
(c) 123rf.com

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

  1. 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

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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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