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California Physical Premium Audits Increasing For Certain Classifications

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California Physical Premium Audits

The rules for California physical premium audits have changed recently.  The WCIRB (California’s Rating Bureau) recently released a reminder memo on the upcoming changes for 2014 Workers policies that have payroll developed under what is called a High Wage/Dual Wage Classification.

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Physical audits will be required for all new policies regardless of the amount unless it is a renewal policy that has been physically audited in the past two years.

According to the WCIRB –

Currently, the USRP at Part 3, Standard Classification System Section VI, Administration of Classification System, Rule 4(a)(2) states: “Each policy producing a final premium of less than $10,000 shall be physically audited at sufficient intervals to ensure determination of proper payrolls.” The Insurance Commissioner’s Decision adds a new audit requirement for policies effective on or after January 1, 2014. 

The new audit requirement provides that each policy producing a final premium of less than $10,000 and developing exposure in a high wage, dual wage construction classification must be physically audited unless the policy is a renewal and the insurer physically audited one of the two immediately preceding policy periods. This new audit requirement also applies to policies issued to Owner Controlled Insurance Programs (also known as “wrap up” policies).

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This means that new small policies will be physically audited even if they are under $10,000.  The recordkeeping requirements for physical audits are:

An audit of payroll, whether conducted at the policyholder’s location or at a remote site, that is based upon an auditor’s examination of the policyholder’s books of accounts and original payroll records (in either electronic or hard copy form) as necessary to determine and verify the exposure amounts by classification.”

The bottom line is that if you have a small construction company with premiums less than $10,000 it is wise to make sure you have all payroll figures correctly recorded.  The old rule was that if your policy was under $10,000 your company may have not been required to go through physical audits.   This will cause a large number of physical premium audits for policies that have less than $10,000 in premiums.

The list of high wage/dual wage classifications  is available here.

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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
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