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How to Dispute A Workers' Compensation "Shock" Premium Audit


It's not uncommon for an employer to go into shock upon receipt of an audit bill for a recently-expired Workers' Compensation insurance policy.


 

Sometimes the increases in premium that result from an audit are unexpectedly high.

Occasionally, they are so extreme as to threaten the financial viability of the company.


 

That's why we call them "Shock Audits". And if you ever end up on the receiving end of one, you'll know it. 

 

And the insurance industry typically does a pretty poor job of explaining what they've done on an audit that makes the premium so much higher that an employer is left sputtering "Wait--what???"


 

You Can Dispute Your Workers Comp Premium Audit Charges and Win


 

But it's vital to do your homework and know what protections and resources may be available to you.


 

First, you need to devote some time and effort to understanding the causes of the premium increase.

To do that, you first need to refresh yourself with the basics of how Workers Comp premiums are calculated.


 

If your instinct is to dispute the amount sought by the insurance company on the audit, because it seems outrageous and unfair and unexpected, your initial outrage and frustration may not serve you well.

 Those feelings may well be completely justified, but the system for disputing Workers Compensation insurance premium charges doesn't much care if the premium charges are outrageous, unfair, and unexpected.


 

The system is only concerned with whether or not the rules have been broken.


 

Insurance companies are accustomed to having policyholders get upset over large audit bills, and their response is often to dismiss your protests out of hand.

To get results, you will have to be specific in your complaints about what you feel are audit errors.


Figure Out What's Changed

 

To figure out if you have a basis for disputing the audit, you'll need a few documents: the original policy, the audit billing statement, and the audit workpapers.


 

First, examine how the estimated premium on the policy had originally been calculated.


 

Look at what classification codes were used, and how much payroll was assigned to each classification. Then compare that to the audit billing statement. If a more expensive classification is used on the audit that was not on the original policy, that may be a reversible error.

Look at the estimated payrolls used on the original policy and compare those to the payrolls used on the audit. If payroll has increased on the audit (as it often does) use the audit workpapers to review how the auditor determined how much payroll to pick up.

 

It's not just total payroll changes that can cause shock audits--it can also be how payroll is allocated among the different classes.


 

Examine what documents were examined by the auditor, and if the auditor had to make any assumptions due to some documents not being available.

If overtime pay is significant in your operations, make sure the audit workpapers indicate that an adjustment has been made to remove the premium portion of overtime pay. Almost all states allow the premium portion of overtime pay to be excluded, as long as payroll records allow the auditor to break it out.


 

The audit workpapers should also explain how the auditor allocated payroll lamong different classification codes.

That is, it should explain why the payroll of certain departments was assigned to particular classifications.

If the auditor has misunderstood the nature of the work done by some employees, it may have resulted in the wrong classification (and thus the wrong manual rate) being used to compute premiums for those workers.


 

Check what charges may have been made on the audit for uninsured subcontractors or independent contractors. Insurers are paying increased attention to this, as in most states an uninsured subcontractor has the same rights as an employee of yours to file a claim under your policy.

If this is a cause of significant premium charges, you may well want to determine if you have (or can obtain) certificates of insurance from these subcontractors.

Also look closely at how any subcontractor payroll has been classified.


 

Make sure to also compare the experience modification factor on the policy to the modifier on the audit.

Most states prohibit increasing the modifier late in the policy term, so if the modifier is higher on the audit than on the policy, it may well be a reversible error. The same applies to schedule credits and debits.


 

Once you've pinpointed what you feel are errors in the audit, communicate these in writing to the insurance company's audit department. If you do not get what you feel is a satisfactory result, you may want to contact your state's department of insurance for assistance.


 

You may also want to appeal technical issues through the rating bureau appeal process in your state.  The particular process will vary from state to state, as Workers Compensation insurance is regulated by state government agencies.

If the additional premium sought is large, and you cannot resolve the dispute using the above means, the insurance company may well threaten to file suit over the additional premium.


 

Keep in mind that this can be a double-edged sword for the insurer--that is, there are arguments that a policyholder can sometimes successfully advance in court that cannot be successfully used outside of the legal arena.


 

If your company finds itself embroiled in an audit dispute of such magnitude, Advanced Insurance Management consultants may well be of assistance in advising you as you consider your options.

Here is some additional information regarding Workers Compensation insurance audit rules.


If your insurer has initiated litigation over a disputed Workers Compensation insurance premium, you may wish to have your attorney contact us regarding serving as an expert witness in the matter.

 

Please email: AIM@cutcomp.com or call us at 800-288-9256 with questions on disputes, audits, classifications, experience modifiers, or other aspects of Workers Comp premiums and audits.

 

"Before we hired Advanced Insurance Management, we were facing almost $40,000 of workers compensation premiums for my company that supposedly had one employee.  I was facing the very real possibility of having to close my doors because of these bills.
Advanced Insurance Management was able to negate the premium that the insurance company was trying to apply. I would highly recommend Advanced Insurance Management to anyone that is involved in a dispute with their Workmans Compensation Insurance carrier.  They saved my business."--WTLS Services

 

 

 

 

 

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"Thanks to your persistence and effort, we received a refund of over $36,000 from our insurance company."-Polar Tool



We Don't Sell Insurance

Advanced Insurance Management LLC is not an insurance agency or brokerage. We're not looking to compete with or replace your current insurance agent.  That means we can assist you, as consultants, without making any change in who you buy your Workers Comp insurance from. And we can work together with your agent, where appropriate, as we are not affiliated with any insurance agency or insurance company.

 

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Companies We've Helped


Manufacturers.        Contractors.      

Transportation companies.     Staffing companies.     Hospitals. 

 

 

An NFL team.  Social Service Agencies.    

 

 

And even a company providing technicians at the National Synchrotron Light Source at Brookhaven National Laboratory.

 

 

 

 

 

In other words, just about every kind of employer you can think of, and some you might not have thought of.

 

 

 

Testimonials

 

 

 

 

How We Can Help You

Over the years, we figure we've produced around $30,000,000--thirty million dollars--in Workers Compensation insurance premium reductions and refunds for clients. In the cases we review, we find significant reductions or refunds in one-third to one-half of them. You can find the answers to more Frequently Asked Questions here.

We've helped employers of all types and all sizes – from very small contractors and machine shops to Fortune 500 corporations. And we're experienced with the Workers' Compensation rules and regulations of every state that allows private insurance for Workers' Comp. So no matter your company's size, or where you're located, AIM may help you to reduce the cost of Workers' Compensation insurance now and in the future.

 

 

you can also listen to an audio interview about our work.

 

Consultants on Workers Comp Classification Codes, Experience Modifiers, Payroll Audits, & More



We've been helping employers since 1987, making Advanced Insurance Management one of the oldest and most experienced firms in the field of premium recovery.


 





"Advanced Insurance Management has been a tremendous help to Allied Welding, Inc., and has saved us money and generated a significant refund on our Workers' Compensation by finding an error in our classifications. We value their expertise."--
Allied Welding
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  • Advanced Insurance Management LLC
  • 3230 South Harlem Avenue,  Suite 203
  • Riverside, IL 60546
  • contact us:phone: 800-288-9256
  • e-mail:aim@cutcomp.com