Fail to complete your workers compensation audit and suffer the consequence of the ANC or Audit Noncompliant Charge! That’s right, you may face being charged up to an extra 300% of your original workers compensation deposit premium. Let’s take a look at this touchy subject.
When you buy a workers compensation policy you’re not only buying a policy that provides important protection for your employees injured on the job, but you’re also agreeing to terms and conditions of the policy. Terms and conditions of any insurance policy may be looked at as promises in exchange for promises. The insurance company promises that they will perform certain activities, like paying claims, in exchange for your promise to pay the premium. This is just one of the conditions you’ll find in an insurance policy.
Another condition, one that’s found within a workers compensation insurance policy, has to do with the Audit. Take a look at a standard workers comp policy and look under “Part 5 – Premium” for “Item G – Audit.” This item starts with these words “You will let us examine and audit all your records…” It goes on to describe the type of records that you will let them examine or audit and the time period in which they may do this. Did you know that an insurance company can audit your payroll records within a period of three years after the expiration of your policy?
So why is this audit so important? The audit process is the opportunity for the insurance company to discover your actual rating payroll or remuneration for the expired policy period. Gathering that information and comparing it to the rating payroll or remuneration used on your original policy is how the insurance company determines the final premium you owe. If your original policy was set up using lower rating exposure (rating payroll) than what was discovered during the audit process means that you under paid your premium for the policy. It also means that the insurance company will send you a bill for the additional premium you owe.
Policyholders who refused to complete the audit process, in the past, were often times given a pass by their insurance company. Meaning that the insurance company would simply mark the audit non-compliant, and would indicate on the policyholders account that the audit was processed using the original policy rating exposure. This would mean the insurance company would not continue to pursue the completion of the audit and would just be happy with the premium the policyholder had already paid. Forgoing the audit.
We now see insurance carriers being much more aggressive in closing out non-compliant audits. Let’s look at a simple example.
Lets say a workers comp policyholder starts their policy using a rating payroll of $300,000. They are in a classification that carries a $20 rate per $100 of exposure. We won’t apply any rating factors and we’ll just assume the premium for this policyholder is $60,000. (Of course it’s much more complicated than this but for our example we’ll do it this way.) This policyholder fails to complete their audit. They are based in one of the states where the ANC (Audit Noncompliant Charge) is 200% of the original deposit premium. The insurance company marks their audit as noncompliant, levies the 200% charge and sends the policyholder a bill for an additional $120,000!
The policyholder does not pay the bill the insurance company sent. The insurance company files suit against the policyholder for the outstanding premium due causing the policyholder to have to retain legal representation and respond to the complaint filed by the insurance company.
All of this happens just because the policyholder would not comply with the audit. Makes a lot of sense right? You just have to ask “Why didn’t the policyholder want to complete the audit? And I’d have to say that’s a real good question!
A policyholder may not want to complete their workers compensation audit for several reasons. Here’s a few:
- They are aware that the original rating payroll they told their insurance agent to use to set up the policy was way under estimated. In other words, they were playing a game to artificially suppress the premium they had to pay. Could that be insurance fraud?
- They are unaware that the audit process is a part of the workers compensation policy and a requirement to complete the final premium for the policy year.
- They think the audit is to intrusive and that the insurance company auditor is asking for too much information that they feel is private.
- They’ve “never had to do one before why do I have to do one now?”
- They do not understand how the ANC can be applied for failure to comply with the audit.
- Their business operations have grown significantly since the original policy was set up and they anticipate a significant increase in premium the owe so they use being non-compliant as a delaying tactic to hold off having to pay additional premium.
- They just don’t have time for such silly stuff!
Ok, so I think I’ve heard just about every excuse there is for a policyholder to delay having their audit completed. Some kind of make sense but most fall into the categories of poor organization, lack of understanding the requirement, a sense of unimportance in completing the audit, a feeling of intrusiveness, a fear of additional premium due, and unfortunately sometimes an intentional manipulation of the system.
With more and more insurance carriers adopting the application of the ANC, Audit Noncompliance Charge, we are seeing a lot of policyholders scrambling around to get their stuff together.
So the ANC is the penalty a policyholder pays for deciding not to complete their audit. Most states allow up to a 200% charge. And in my world, that’s not just chicken feed!
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Hope this somehow helps you out and thanks for reading!