Workers Comp Physical Premium Audits Change To Hybrid
Workers Comp physical premium audits have now changed to what is essentially hybrid premium audits. Remote hybrid premium audits are defined as non-physical premium audits using a combination of phone calls, video chats, and document submittal as a substitution for workers comp physical premium audits.
Almost all premium audits are performed by a review of the documents only when submitted through an insurance carrier upload portal. I have not been a proponent of allowing an auditor to carry insureds’ records offsite to review at home. I had always thought that physical onsite premium audits increased the accuracy of the audits.
An Understanding During the Pandemic
One of the prior main concerns was that without touring the insureds’ operations the premium auditor’s accuracy would diminish. One had to understand that Zoom-based premium audits during the pandemic were usually more than acceptable.
Now, that the pandemic is considered over, hybrid premium audits are still allowed by the rating bureaus (NCCI, WCIRB). The last notice from a state’s Governor came from Governor Newsom in October 2022 extending the pandemic emergency until March 2023.
From WCIRB online – (still in effect?) – notice that roofers need an in-person audit.
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Workers Comp Physical Premium Audits (Requirements)
The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) has received questions about which workers’ compensation policies must be physically audited. Under a variety of circumstances, it may not be advisable or even possible for premium auditors to meet face-to-face with policyholders or their representatives to conduct an audit.
There are no changes anticipated for physical audit requirements, but it is important to note that the California Workers’ Compensation Uniform Statistical Reporting Plan—1995 (USRP) does not require an in-person meeting with the policyholder or its audit representative.
The USRP defines a physical audit as 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. (Emphasis added)
So it is possible to perform a physical audit remotely, provided the auditor reviews the policyholder’s original payroll records. This is most often accomplished by making the records available to the auditor electronically. This requirement speaks to what must be reviewed, not where the review is to be done. While it may be a best audit practice to conduct an on-site survey of the policyholder’s operations concurrent with the payroll audit, it is not a USRP requirement.
In contrast, a Voluntary Audit is an audit of payroll that is based upon a signed payroll statement obtained from the employer; in this case, the auditor does not review the policyholder’s original payroll records.
The USRP contains the following physical audit requirements for policies incepting on or after January 1, 2021:
(1) Each policy producing a final premium of $10,500 or more shall be subject to a physical audit at least once a year. On policies subject to monthly, quarterly, or semi-annual interim audits, voluntary audits may be accepted in lieu of interim physical audits. The last audit of the policy shall be a physical audit of the complete policy period.
(2) Each policy producing a final premium of less than $10,500 shall be physically audited at sufficient intervals to ensure the determination of proper payrolls. For each policy that is not physically audited, a voluntary audit shall be performed.
(3) Each policy producing a final premium of less than $10,500 and developing exposure in a dual wage construction or erection classification that requires the regular hourly wage to equal or exceed a specified amount shall be physically audited, unless the policy is a renewal and the insurer physically audited one of the two immediately preceding policy periods.
(4) Notwithstanding the above, a physical audit shall be conducted on the complete policy period of each policy insuring the holder of a C-39 license from the Contractors State License Board. See California Insurance Code Section 11665(a) for additional requirements regarding the audit of C-39 license holders.
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NCCI Q&A From 2021 – Still in Effect?
This is what I found on NCCI’s website
8. Can NCCI provide guidance on how carriers should handle physical audits vs. virtual audits from a voluntary and residual market perspective?
NCCI offers the following guidance:
Voluntary Market—As compliance requirements vary by state, NCCI suggests that voluntary carriers consult the state regulators’ websites for bulletins or executive orders to determine if there are any exceptions to compliance requirements as a result of COVID-19 (e.g., virtual audit rather than a physical audit).
Residual Market Policies—For policies written through the Workers Compensation Insurance Plan (WCIP), if assigned carriers (servicing carriers and direct assignment carriers) are unable to complete physical audits due to travel restrictions or policyholder unavailability due to COVID-19, the assigned carriers should be flexible and document their files regarding any extensions provided or action taken. This process is important to ensure a complete record is available for auditors reviewing files against NCCI’s Assigned Carrier Performance Standards.
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From the NCCI passage, the rules for Workers Comp Physical Premium Audits should be performed under the rules of each state. Will all workers comp premium audits stay as hybrid audits? Are in-person workers comp premium audits a thing of the past? Only time will tell.
September 2024 Update
Most carriers now perform physical premium audits as hybrid premium audits. Your carrier may be asking your company to submit items through an upload. Most will still allow you to mail them in if you do not have the facilities to scan the documents.
Will Workers Comp physical premium audit ever occur in person again? Only time will tell.
April 2025 Update – Most premium audits are still done using the hybrid method.
