Audit errors and mistakes happen all the time. Many factors influence the accuracy of a workers compensation audit. If you've experienced any of the top ten errors found on this page or have received a large audit bill, you should have your audit reviewed. For more information about this special service, learn about its affordable fee or to discover more about the information we'll provide about your current or past workers compensation audits, go to our Audit Review Service page.
Top Ten audit errors and mistakes made by insurance companies that cost you money!
On this page you will find a listing of the top 10 most common mistakes made by insurance companies when conducting your workers compensation premium audit. Simply page down or use the list found on the left to learn how these top 10 audit errors occur and what to do about them. We've combined these all onto this single page of our website and you will find each section of this page will provide you detailed information on these errors for your use. While this is certainly not an all inclusive list, it is one we feel will help you better understand the cause and effects these errors may have on your total workers compensation cost.
Approximately 25-50% of business owners who carry a workers compensation policy are now or have been in the past overcharged by an insurance company. Most business insurance clients have no idea that there are errors in their premium calculations.
We find errors in all aspects of workers compensation insurance policies and audit processes. Removed work comp credits, misclassed workers, charges for subcontractors, unexplained changes in EMR or experience modification rating factors, improper application of governing rules, no physical audits, payrolls that do not match, rate changes applied at audit, not allowed payroll separation are just a few of the more common mistakes made that we discover. So, be sure to scroll down and read more about these costly errors!
Each of the errors we've listed has proved, over time, to be the direct cause of our clients paying to much for their insurance coverage. When you review these items you will find an in depth description of the specific mistake, including what to look for on your audit or policy that may indicate you've been exposed to an error of this type. We also offer helpful suggestions as to the nature of the mistake and in some circumstances an indication on how you may avoid or have the mistake easily corrected.
Keep in mind, the auditor works for the insurance company, not for you! Workers Compensation Consultants work for you!
1 - Wrong Work Comp Job Class Was Used -
The wrong workers compensation job class was used on your audit. Workers compensation job classifications are used to identify the activities of insureds or employers and place them into underwriting and rating groups based on industrial or occupational categories. Rules govern the applicaiton of these classification codes. Generally your business will classed and assigned to a governing class code which most represents your business operations or work. This is the class code that will show on your policy. There are some exception classes that may also be applied to your policy. Certain types of business are allowed to use more than one class code in addition to the standard exception classes.
Misapplication of job classifications occur in many work comp audits. With about 700 job classes to choose from it is easy to see how audit mistakes and errors may occur.
Here's what you need to be looking for:
Did the auditor change your work comp class codes on the audit?
Were your class codes changed by the insurance company?
Was your payroll moved into the highest rated class?
Were your key employees and owner classified correctly?
Was sub contract labor properly classed?
These are just a few things to look for that may indicate incorrect class codes were used on your audit. Incorrect audits mean you are paying too much for your insurance coverage. Be sure to check out our detailed section on classification codes for more information on how these effect your policy and premium you pay.
2 - Experience Modification Factor or EMR Was Changed -
Your experience modification factor, EMR, was changed on audit. When your audit is completed the insurance company will use the information gathered during the audit and recalculate your premium. During this recalculation of premium the experience mod or EMR must again be applied. We consistantly find errors that occur in the premium recalculation process.
Insurance companies also have very specific rules they must adhere to in the application of an experience modification factor. There are certain time frames they must meet in order to apply an experience mod to a policy. We find where these rules are broken when a company applies the experience mod. This mis-application of the rating factor results, many times, in additional premium being applied to the employers policy.
To protect your interest we feel it's important to have your EMR, experience rating factor, reviewed by an independent source, not employed by your insurance company, but who works for you, on a regular basis.
3 - Charged For Subcontractors on Your Audit -
You are charged on your audit for subcontractors. Auditors specifically look for uninsured subcontract labor when conducting a work comp audit. You will find questions they ask are designed to discover these types of additional premium generating situations. Remember the audit is not your friend! He or she works for the insurance company and is there to discover all premium generating items for the insurance company. They are not there to help you reduce your premium!
Uninsured subcontract labor is a legitimate additional premium generating item. However we find many errors occur when an insured subcontractor is mistakenly included in your uninsured contractor list. It is always a better practice to use insured contractors when possible. Don't forget to get that certificate of insurance! It's your only proof that your sub carried workers comp and it's your ticket to not being charged for his or her work comp exposure.
Always secure certificates of insurance for work performed by a sub;
Make sure you have valid certificates;
If allowed in your State and used by your insurance company, be sure waivers are in their proper form.
Subcontract labor always presents challenges. Make sure you are not caught off guard during the audit process!
4 - Premium Credits Or Modifiers Are Removed During The Audit -
What happens when policy premium credits or modifiers are removed on your audit? When your policy premium is calculated and your original deposit premium is determined, your policy may qualify for certain premium credits. These credits are applied to your premium thus reducing the amount you pay.
It is not uncommon that premium credits or premium modifiers are mistakenly removed when your audit premium is calculated by the insurance company. Whether removed in error or not this action will result in an incorrect work comp premium audit. Possible leading to an unnecessary additional premium that you will have to pay.
Here's a few common premium credits that may be used in computing your workers compensation premium:
Large Premium Discount
State Specific Credits
Premium credits cam make a significant impact on your total policy cost. If credits you've earned are removed from your audit premium calculation, your audit will be wrong and you will pay more in premium than you should.
5 - No Workers Compensation Audit Worksheets Are Provided To You -
Audit worksheets are not provided to you by the auditor. Worksheets are the work papers the auditor uses to compile your payroll and other audit information. You should always be given a copy of the worksheets when the auditor has completed his audit and is preparing to leave your business.
Why is it important you have a copy of the worksheet?
Worksheets show how the auditor classed your business;
They show the total rating payroll used in generating your audit;
Worksheets show a detailed description of your business;
Specific information gathered about your business will be shown on the worksheet.
Without worksheets, you will just receive an audit statement, a bill, from the insurance with no explanation as to the information used or how that audit statement was developed. The insurance company wants you to pay the bill and move on.
How do you know what that audit bill is really for? So why not just pay it! But don't forget, insurance companies and auditors make mistakes on audits all the time!
6 - Workers Compensation Rates Are Changed -
Work comp rates are changed on your audit. Rates used on your policy are set at the begining of your policy period. Only under very specific circumstances are insurance companies allowed to change your rates during mid term of the policy. Specifically, an insurance company must attach an endorsement to your policy which informs you of this potential rate change. At which time the company may be allowed to endorse your active policy to reflect rate changes in the classifications used on your policy.
Rate changes made during the audit process are generally not allowed. The insurance company must have previously endorsed your policy to reflect their rates.
Keep on the lookout for:
Rate changes that show up on your audit but not on your policy;
No previous endorsement to change your rates on your current or active policy;
Split rates on your original issued policy;
Rate changes applied during your policy period.
An insurance company cannot just change your rates because they feel like it! There are very specific rules they must follow. When these rules are not followed you may have an incorrect audit. Keep in mind that an incorrect audit means you are paying more premium than you should.
7 - Separation Of Payroll Is Not Allowed -
Separation of payroll is not allowed by your auditor. For contracting classifications, separation of payroll is allowed when certain specific rules are followed. Basically, separation of payroll occurs when you are able to split an employees payroll between job classifications which may be more representative of the actual type of work this employee is performing. Many errors occur when an employer believes they may separate payroll but find out later, at audit, that they did not correctly follow the rules and that the separation they were counting on is not allowed on their audit.
Here are some things you need to find out about payroll separation for your company:
Is payroll separation allowed for my type of company?
Have I been instructed on how to properly separate payroll on my payroll records?
Payroll separation may save you significant premium dollars, but it must be done correctly.
If an auditor has diallowed your separation of payroll your audit may be incorrect. Typically when separation is not allowed the auditor will dump all of you rating payroll into the highest job classification which can cause your audit to be incorrect. Keep an eye on payroll separation. Remember not all types of businesses are allowed to do this!
8 - Large Additional Audit Premium Due -
You receive an unexpected large additional premium bill from your insurance company for your workers compensation audit. This can be a very good sign that there is a mistake in your work comp audit. You may be expecting a premium bill from the insurance company but when it arrives you are very surprised that it is so large! This is normally the first indicator you will have that there is a mistake or error in your workers compensation audit.
If you receive a large additional premium bill you need to ask these questions:
Did I expect my audit to generate this amount of additional premium?
Did I have a big increase in payroll that could have generated such an increase in premium?
Was there any other reason that may have contributed to this increase?
If you are unable to justify the increase you have received from the insurance company or the increase seems to be unreasonable you should seek independent help to review your audit. There are many places on an audit where errors occur. An independent consultant will be able to help in reviewing your audit for accuracy.
9 - Your Payroll Does Not Match -
Your payroll numbers do not match the completed work comp audit. It is very important that your audited payroll, as indicated on the completed audit received from the insurance company, match with the payroll as generated by your accounting department. If there is a mistake in compiling and reporting the payroll, your audit will be incorrect.
What can cause your payroll to be wrong? Here are some common areas for payroll mistakes:
Payroll figures used are for the wrong period of time;
Incorrect payroll numbers are provided to the auditor;
Auditor incorrectly applied the payroll provided;
Payroll caps are incorrectly applied;
Overtime is incorrectly adjusted;
Other remuneration is incorrectly applied as payroll.
And these are just a few! As you can see, there are many ways incorrect payroll or remuneration can adversly effect your audit. Mistakes can be made in both providing the requested payroll information and applying the payroll information received!
10 - No Physical Audit Completed -
An insurance company will complete one of these three basic types of audits:
A mail audit is where the insurance company mails you an audit form to complete and instructs you to mail, fax or email the completed form back to their office for processing. Here's a question for you...ARE YOU A TRAINED PREMIUM AUDITOR? Probable not. We've found the so-called self audit forms are confusing at best and when completed by an employer are normally completed incorrectly. Your audit premium is based on the accurate completion of these forms.
A phone audit is just what it states, an audit completed over the phone by an insurance company audit department employee. They are usually conducted with the business owner however this task may sometimes be given by the employer to someone who works in their office. We find this audit method creates inaccuracies due to communication errors between the parties.
A physical audit is conducted by an insurance company or subcontracted auditor, on your premises, with you, the busines owner. This is the most accurate type of work comp audit but don't let your guard down! Just because the auditor visits with you at your work place doesn't mean they will always complete an accurate audit. Keep in mind audit mistakes are made every day!!
As you can see there are many ways a workers compensation audit can go wrong! From simple incorrect information gathered during the audit process to mistakes made in the recalculation of premium process errors do occur in an amazing number of cases. Our service is geared to represent you, our client, in discovering and correcting these types of errors. Keep in mind these are just a few things to look for that indicate you may have suffered an incorrect audit. And as we know by now, incorrect audits mean you are paying too much for your workers compensation coverage!
Be sure to visit these related pages to learn more about the workers compensation audit and audit process!