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Changing Carriers Due To Premium Audit Bill Can Be Costly

Our Workers Comp premium audit bill surprisingly increased our premium by 26%.  We do not necessarily agree with the audit and want to change insurance carriers.    Due to the timing of the audit, we are already two months into our next policy.  Can we dispute the audit and cancel our renewal policy?

Graphic of puzzle with dollar sign printed Premium Audit Bill Concept

We receive this question often. There seems to be two issues here – one of the premium audit dispute, and secondly canceling a policy midterm.   Both could turn out to be a very expensive proposition if not done properly.

This blog contains numerous posts on premium audit disputes.   There are time limits on disputing your premium audit bill.   Your company has to be very careful in just disputing a premium audit bill because it looks large.   Reviewing the bill and audit may point out a reasonable explanation for the increase.

If you review the bill and associated premium audit and still feel there are overcharges, you can dispute the bill.  It is a very wise move to have a basis for your dispute.   Your company may even owe a larger bill if the dispute is not done properly.

The second concern is one that has to be handled delicately.  Your agent may have already explained to you there are short rate penalties that can be substantial.   An assessment of the short rate penalty revolves around a complicated formula for computing the carrier’s fee.

If your company is already six months into your new policy, the penalty can be very substantial.  If your company is only two months into a policy, the cost may not be that high to switch.

Searching for a new policy takes time.  The new carrier will know that you had canceled out before policy expiration.  The search for a new WC policy may take a few weeks if not months.

Arrow Increase diagram and dollar sign Premium Audit Bill Graphic

There is an inherent delay in receiving the premium audit bill for the prior policy while the next year’s policy is being renewed.  The premium audit process cannot finish before your next renewal as the carrier needs to have a complete year of payroll and documents.   The normal WC insurance cycle does not provide for an audit 11 months into a policy.

If you are not a fan of the premium audit and policy renewal process, there are many alternatives such as pay-go or PEO‘s.  These two options have basically no audits and/or you pay for the WC coverage every payroll period.  Both of those options have been growing in popularity over the last few years.   There is a caveat that these two types of WC coverage must be placed properly.  If not, your company may end up paying much more than for a regular WC policy.

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management 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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