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Premium Audits And Short Rate Penalty – continued

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Premium Audits And The Short Rate Penalty

In my last post, I covered the predicament some employers can be in when they want to switch insurance companies due to their premium audit sticker shock. The main consideration is the short rate penalty. The premium audit has just been completed so your company is very early into your next policy.

Picture Of Stack Of Coins Short Rate Penalty With A Hand Holding Magnifying Glass
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Your company is going to receive a very heavy financial penalty even though you may have no claims. That is due to the sometimes nasty Incurred But Not Reported (IBNR). The insurance carrier is basically saying there is a risk that even though claims were not reported during the short rate policy, your employees may have unreported injuries. It is a common term.

What is your plan of action if your company is in this “back against the wall” situation? You have seven choices. You can :

  • Dispute the audit, if there is a good reason. You may have to call in an audit expert – yes, that was a shameless plug for J&L
  • Take the new policy on the chin and wait until the end of the new policy period to switch. The caveat here is you are going to be hit with another audit.
  • Calculate the short rate penalty to see how much it will cost your company to switch and pony up the funds. It is not a simple calculation. We do them occasionally. The short penalty tapers off later into the policy.

    Picture Of Businessman Calculating short rate penalty Premium Audit
    (c) 123rf.com
  • Calculate the short rate penalty further into the policy to see if there is a better time to switch. However, you have to the extra premium while you wait and then pay the penalty. This may not make good financial sense. Attempting to game the system will always end up costing more unless you know what you are doing.
  • Just consider Workers Comp as overhead and write the check. If you were going to do that, you would not be reading this blog or post.
  • Ask for a policy extension. I have rarely seen this agreed to by the carrier.
  • Call or email us – even more of a shameless plug

The short rate penalty is calculated with factors from a group of tables. The interesting note is all insurance carriers say that the short rate penalty explanations are in the policy. The Workers Comp policy usually will only refer to applicable tables and calculations which are not located in the policy.

Picture Angry Businesswoman Short Rate Penalty Red Card
StockUnlimited

The best way to avoid this whole situation is with proper policy pre-planning. This involves:

  • Calculating your E-mod six months early, yes, it can be done.
  • Performing a pre-audit on your current Workers Comp policy to avoid audit sticker shock, especially if you have increasing payroll figures.
  • Making sure you have rock-solid job descriptions for all employees.
  • As always, making sure you have a good safety program. The less accidents your company has to include in the E-mod system, the better.

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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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