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Is a Post Audit Policy Switch Good Idea For Most Companies?


Post Audit Policy Switch Can Be A Disaster If Knee Jerk Reaction

A post audit policy switch may not be a good idea in most cases.  The penalty incurred may be significant.

Picture Of Man Hand Drawing Post Audit Policy Bar Graph With Dollar Sign

I received this question over the holiday weekend.  Our recent premium audit by the Workers Comp auditor indicated that we owed an additional 31% on our policy that expired two months ago.  We switched policies to another insurance carrier two months into the next policy.  We now received another large bill on top of the premium audit bill.  Why? 

Some of the largest unexpected policy bills occur when an employer switched mid-policy term to another policy.  This is known as the short rate penalty.  There is a somewhat complicated calculation of the penalty.  The short rate penalty can be substantial.  This is very true when the policy is switched after six months.

The short rate penalty is the insurance carrier’s way of making sure that an employer does not keep switching carriers if they have a large or numerous claims.  The carrier has to have some way to charge premium for the claims even though they no longer are the carrier on the policy.

Angry Woman Post Audit Policy Holding Red Card

Even though you had no bad claims experience, the insurance carrier will still charge your company for the short rate penalty.  One suggestion would have been previous to switching policies to review the 31% premium audit increase and dispute any substantiated overcharges.

The 31% increase may also be incurred when the premium auditor for the new carrier reviews the new WC policy after expiration.  The new lower quote for your policy may not have taken into account the situation that increased your old policy.

The other function of the short rate penalty is to keep employers from switching policies many times during the policy year after bad claims experience.  Switching policies will temporarily also affect your E-Mod.  Your E-Mod may not have reflected your recent claims experience.

Your old and new carrier will report your claims to the respective insurance rating bureau (NCCI or WCIRB).   Switching policies midterm will not avoid the claims appearing in your Mod calculations.

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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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