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Workers Comp Audit Stress Reducer
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Workers Comp Premium Audit Season Prep Work Required

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Workers Comp Premium Audit Season Over The Next 3 Months

Workers Comp premium audit season is upon us again.  Why do I designate this time of year as premium audit season?

The largest number of premium audits for WC are performed from January – February of each year.  Why would it be January/February?

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January 1 is the most popular renewal date for insurance policies including Workers Compensation.

As a side note, there are some disadvantages to a January 1 renewal date as you can see in the linked article.

The premium auditor will usually contact your company within 30 days and will perform and finish the audit within 60 days after policy expiration.  I was going to write the usual – preparing for a WC audit article.

I then realized there are many audit prep articles already on the Internet.   I really do not like to refer to them as they recommend such strategies as putting the auditor in an uncomfortably cold or warm room, etc. and how to tell your employees to dress the day of the audit.

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There are even many WC carriers that have published articles on the process of a Workers Comp audit. That makes sense as anything a carrier can do to make the auditor’s job easier would be highly recommended.

I am not saying that making the premium auditor’s job easier will help your company when it comes to the audit.   There are two main points I wanted to bring up concerning WC audits.

The two most important prep work tasks are (in my humble opinion):

Organization of the audit materials

Dumping folders of data and receipts on an auditor may have been an old school way to have the auditor just give up on the audit.  That is not the case any longer.

One of the easiest tasks is to always summarize any of the data on a spreadsheet.  That may seem simple.  Many companies are not doing this task.  Two of my good friends are tax auditors – one for employers and one for the IRS.  They both have stressed the fact that organized data gives the best first impression possible in any type of audit situation.

Designating one and only one very knowledgeable employee to assist the auditor and answer any questions falls under the organization category.   Most premium auditors are going to be there for 1/2 to one day at the most.  The employee will not be inconvenienced except for a short period of time.

Having multiple employees answer the premium auditor’s questions may end up confusing the auditor and not providing the proper substations for the premium audit.

Separating out any subcontractors/temporary employees along with the proper certificates of insurance is a very good  idea.  A spreadsheet of these two types of non-employees is also a good idea.  Having the premium auditor correct any non-employees that are deemed employees during the audit can be an arduous task at best.

Your company’s organizational skills are extremely important.   A yellow flag pops up in the auditor’s mind if your recordsare very disorganized. 

An employer that provides: 

  • Organized payroll data
  • A knowledgeable employee to answer questions and provide additional data if requested
  • Full subcontractor information

will always have a better workers comp premium audit season experience.

Read Your Workers’ Comp Policy Before The Premium Audit

The second area of preparation I wanted to cover is reading your Workers Comp policy front to back.  The basis for all Workers Comp premium audits is, of course, the policy.  There are several parts to your policy.   The Dec page or Declarations Page is the most important.  

Unless your company has many different types of employees, your Dec page should not be that long.  Review it very carefully.  Does the Dec page describe the business practices of your company?  If not, you should be asking questions long before the premium audit.   

Woman Agent Premium Audit WalkingWith Clipboard
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The premium audit is the worst time to receive an unexpected bill that is not in your company’s budget.  I do realize that in this very bad economy your company may not have the time to review everything as you are in the survival mode.  Presently, we are seeing companies headed to bankruptcy by owing very large unexpected Workers Comp bills.   In other words,  reviewing your WC policy is part of your survival mode. 

The Dec page is a good start if you are in a time crunch.  Reading the whole policy is worth it.  I have heard from employers, agents, and other insurance personnel that after the Dec page, the WC policies are all fluff and really do not change.  That may be true for possibly one year.  That is not true for the long term.   A client’s policy changed over 70 times in a year when J&L performed a premium audit review.   

The policy will usually contain:

  • Rules for the premium audit
  • Audit dispute procedures
  • What is excluded from coverage
  • States that you are covered for Workers Comp – usually on Dec Page

Many times the insurance endorses (changes) the policy before policy expiration, often at the very beginning of the policy year.   These changes are called Endorsements.  These Endorsements can change the policy dramatically.

Reading the policy and Endorsements will usually generate questions.  I always recommend asking your agent/broker and then obtaining another objective opinion.  

For every policy, the workers comp premium audit season in 30 – 60 days after your policy expires each year.  Being prepared will cut your comp costs.

2021 Update – With the pandemic in place, most audits are performed remotely.  In-person Workers comp premium audits may be in the rearview mirror or at least delayed for months or years.   The same above suggestions apply.   The audits are now being done by video.   

If the premium audit visit is being done by video, make sure that you have a copy of the exact materials that the premium auditor requested previously in front of you in case there are any questions.

Check out this article on hybrid premium audits.  You may have to send the materials to the premium auditor or premium audit department.  Make sure that you only send what is asked for – no more and no less.

Good luck during the workers comp premium audit season.

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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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