Can I change my workers compensation insurance company during the policy period?

Posted on May 5, 2012 by Randy Sieberg, CIC, ARM, CRM

 Sure, you can cancel your policy. It’s your policy and you have the right to do so. You can  decide to pay the bills and keep going or you can choose to stop paying the bills and let the insurance company cancel your policy for non-payment (never a good idea) or you can request that your policy be cancelled, it is still a free country after all!  …..But be prepared…you may not like the consequences! 

An insurance policy is a contract, remember? You sign an application, pay a premium and the insurance company issues a policy, a contract, that lays out who will do what and how the policy will respond. One more time…IT’S A CONTRACT! So don’t be surprised as to the consequences built into the contract for any given action…on either party.

Did I say don’t be surprised? That’s kind a funny if you think about it….when’s the last time YOU read an insurance policy…that’s ok, not may folks do! And that’s where the trouble begins. You can believe the insurance company knows the contract forward, backwards, inside and out. They certainly know their rights as agreed to by you when you signed up for the policy. They know what they can and cannot do. That’s the sad part, most consumers, when they purchase a workers compensation policy, have no idea of the responsibilities they just agreed to.

 So here’s a few things to know if you decide to change your workers compensation insurance company during the policy period:

  • You will be penalized and pay more premium for doing so; It’s called short rate cancellation. You may think if you cancel a policy they will only charge you for the time you had insurance…not correct. The insurance company will apply what’s known as a short rate cancellation table, developed to recognize the fact that claims may have occurred during the coverage period but have not been reported. This is a factor that will be applied to the cancellation premium. Simply it means the insurance company will get to charge you more if you cancel your policy closer to the renewal date than closer to the expiration date.
  • A cancellation audit will be conducted; Just because you cancel the policy doesn’t mean the insurance company will waive it’s right to audit and inspect your books to determine the proper exposure. And after the audit, they will perform the cancellation premium adjustments.
  • Anniversary rating date and experience modification changes; Changing the anniversary date of a workers compensation policy will be confusing when it comes to how and when the experience modification factor calculations are conducted. Just because you change the policy date doesn’t mean the emod dates are automatically moved. It takes a few years for the emod calculation dates to catch up. This simply means your policy will be adjusted sometime during your policy period for any changes to your current emod. It will be confusing. And just by changing the date of your policy doesn’t mean that you will be receiving the current, and possibly lower rates, from your new insurance company. The application of the anniversary rating date endorsement to a policy sees to that.

While there may be good reasons that you want or need to move your workers compensation insurance policy to another insurance company, keep in mind there are issues you will have to deal with. It’s probaly a good idea for any employer considering cancellation or moving coverage to consult with an independent workers compensation consulting firm. Yep…a commercial for what we do! Sorry. But still a good idea! And keep in mind the items I’ve listed above are just few of the issues that can come up…believe me, there are more!

So let’s recap…yes, it’s your workers compensation policy, you can cancel it if you want…but there are consequences!

Don’t be surprised! Do your homework and learn the proper steps in cancelling or moving to another insurance company. It could save you thousands in hard earned money!

Hope this information helps you out! Thanks!

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How far back can an insurance company go to audit a workers compensation policy?

Posted on May 3, 2012 by Randy Sieberg, CIC, ARM, CRM

This question comes up quite often and resurfaced again just the other day. You can find many answers to workers comp questions like these at WorkCompConsultant.com so be sure to visit!

 To answer this question, under normal circumstances, we have to look to policy wording for guidance.

Look in the standard workers compensation policy for Part 5, Section G, titled “Audit.” Within this section it states that you, the insured policyholder, will allow the insurance company to examine and audit all your records that relate to this policy. It goes ahead and states what those records may include. Read a little further and it states they, the insurance carrier or their representatives, may conduct the audits during regular business hours during the policy period. It also states they may conduct audits within three years after the end of the policy period.

So the wording found within a standard workers compensation policy gives the insurance company the right to conduct an audit or audits within three years after the policy period ends.

Special circumstances may also apply. If an insurance company suspects fraud or fraudulent activity regarding the information provided which they relied upon to set up the policy they may seek legal remedy and this whole question will be resolved in litigation.

Hope this helps out!

Thanks!

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Retrospective Rating Plan Claims Review – An Essential Step

Posted on May 2, 2012 by Randy Sieberg, CIC, ARM, CRM

Workers compensation retrospective plan loss sensitive rating leads to a little known, but often skipped, essential step of verification.

For employers using workers compensation retrospective rating plans it is essential they have an independent review of claims conducted. Retrospective rating formulas and adjustments are heavily weighted by workers comp losses as adjusted and applied to the employers account by the insurance company administering the plan for the employer. Mistakes in the proper application, payment and settlement of claims by the insurer will have drastic effects on the adjustment premium employers pay.

We conservatively estimate 60%-70% of all workers compensation claims contain errors and overpayments that directly impact the adjustment premiums these employers pay. As a matter of fact it’s adverse claim settlements that lead to a great deal of employer/insurer litigation over retrospective rating plans.

Be sure to read more about workers comp retro plans at our website.

Lesson Learned: All employers using workers compensation retrospective rating plans should have independent claim reviews conducted an outside source to verify the accuracy and application of all claim payments made by the insurance carrier.

Thanks!

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Workers Compensaton Premium Audit – The Audit Process

Posted on May 1, 2012 by Randy Sieberg, CIC, ARM, CRM

The workers compensation premium audit process is the act of reviewing your books at the end of a workers comp policy to discover and document the actual exposure generated by your business during the policy period. …Sound like insurance talk? Sorry about that!

Be sure to visit the Workers Compensation Audit Review page on our website for more detailed information!

The workers comp premium audit is a neccessary part of the pricing mechanism for this type of insurance policy. You see, a workers comp policy is originally set up using only an estimated payroll or remuneration as the exposure base. Then after the policy expires the insurance company will examine your books and determine the actual exposure and adjust your premium accordingly. That means your premium for the expired policy will either be more…or less than the original estimated premium…but should really never be the same.

The premium audit process is similar between different insurance companies. You’ll find an insurance company may conduct several different types of premium audits which may include the self-audit, the telephone audit and the physical audit. Each of these audit types carries its own level of accuracy.

If you’re an employer, take some time to learn about the premium audit, what it means to you and how you should prepare. And yes there are some things you should do to prepare for a workers comp audit.

Remember, when it comes to conducting a premium audit, it’s supposed to be all about accuracy. Unfortunately it seems that many audits turn out to be a competition between the insurance company and the employer! And usually a NO-WIN situation for both! 

Be prepared. If it’s a physical audit, where an auditor actually visits your office or place of business to conduct the audit or a self audit or telephone audit being prepared and knowing the process is important to any employer. Get your ducks in a row, have the information requested readily available for the auditor. If it’s a telephone audit, have the information available and be ready to answer questions the auditor may have for you.

Hope this helps you out! Thanks!

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Workers Compensation Agents – Help Your Clients Understand!

Posted on May 1, 2012 by Randy Sieberg, CIC, ARM, CRM

Not a day goes by that we don’t receive an email or call from an employer looking for help with a workers compensation audit or premium problem caused by a subcontractor!

Many of the problems we deal with come from the use of uninsured subcontractors and the effect they have on an employers workers compensation premium. I don’t know if it’s just poor communication between the agent writing the policy and the employer when the policy is originally set up or something else but I can tell you it’s an area that generates constant problems…the use of uninsured subcontractors! I’ve written about this topic many times and described many employers who get caught up at audit time in the uninsured subcontractor trap. How unfortunate and how avoidable is that!?!

Ok, so maybe it can be confusing for a new employer, setting up a policy for the first time, maybe with an agent who is not so familiar with the work comp rules, to understand all the problems that can be associated with using uninsured subcontractors.

So while there may be some exceptions out there let’s cut to the chase and just say this: You will be charged by your workers compensation insurance company for using uninsured subcontractors! And this may cost you a lot of money!

Sorry for the ranting…

So agents…make sure your clients understand the effect and ultimate cost using uninsured subcontractors may have on their policy. Now who was it that said…”Knowledge is Power?”

 Thanks and I hope this post helps you out!

Posted in Contractors, Lesson Learned, Uncategorized, Uninsured Subcontractors | Tagged , , , | Comments Off

Retrospective Rating Plans, Claims and Workers Compensation

Posted on April 30, 2012 by Randy Sieberg, CIC, ARM, CRM

I recently spoke with an attorney representing a client with a pretty big problem generated from adverse claims and the effect of those claims on their workers comp retro premium. She said it perfectly…”I wouldn’t suggest anyone have a work comp retro plan…unless they were a very sophisticated employer with experience using such programs…they just lead to trouble!” These are words of wisdom.

Retro plans are extremely complicated, claim sensitive plans developed and used as an alternative funding mechanism for workers compensation premiums. For some employers they make sense, for others they are nothing trouble which usually lead to some form of litigation. So as an employer if you are approached by a broker or agent suggesting you consider the use of a retro plan for workers compensation take a few minutes and visit our Retrospective Rating Plan page on our website to learn more information about these programs.

If you are an attorney and are seeking assistance in the form of Expert Witness or Litigation Support for your client experiencing a litigation problem with a retrospective rating plan be sure to contact us. Our experienced consultants can help with retro litigation problems.

We’ll have more details in the near future about retrospective rating plans so be sure to come back!

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Workers Compensation Audits – How to Prepare

Posted on September 9, 2011 by Randy Sieberg, CIC, ARM, CRM

What’s the number one mistake employers make on workers compensation audits? Not being prepared!

If you have a workers comp policy, the audit is going to happen. It just does. Whether or not you want it, it’s coming. We receive many calls from new clients after the audit process has deteriorated to a point of name calling and accusations! The clients account may be on the verge of being turned over to a collection agency or removed from the insurance companies audit department and placed in the hands of their legal department. Or their audit has been reported as Non-Compliant. Regardless the situation, once the audit process has deteriorated there is no easy fix. As a matter of fact it can be quite difficult and costly to repair…even if there are legitimate mistakes found in the audit!

We believe most audit errors begin either when a workers compensation policy is first purchased or set up or when a policy renews without review. Poor communication between the agent and their client, misunderstandings or making assumptions at these points cause many problems. Poor communication from the client with their agent or insurance company after changes in their operations have occurred also cause many problems. Frankly, problems that should not happen.

So here’s a little free advice about workers compensation audits….BE PREPARED! Take the time and prepare for an upcoming audit. Have the information the auditor has asked for ready and be available to discuss your company operations with the auditor and answer questions about the work processes and materials you use in your business. Have your payroll records and certificates of insurance ready to turn over. In general, be prepared for the audit! Then, after the audit is complete and you’ve received the results, contact an independent outside consulting firm to review the audit for you!

Lesson Learned: Prepare for a workers compensation audit! Do what’s right. Provide the correct information on a timely basis. And learn about the process!

Thanks!

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Work Comp Carrier Charges Contractor For Visit To Hairdresser!

Posted on September 7, 2011 by Randy Sieberg, CIC, ARM, CRM

It’s just not fair! Can’t tell you how many times I’ve heard someone say that about a workers compensation audit problem. Sometimes they’re right…sometimes they’re wrong…and sometimes the truth lies in between!

We were recently contacted by a contractor who operates their business as a sole proprietorship and in doing so they run their business through their personal checking account. During the physical audit of their accounting records the auditor discovered a payment made to the clients hairdresser. Please understand…this client is a construction contractor…they build things! The auditor, while at the contractors place of business, called the hairdresser to verify the payment as shown in the check register. The audit was then completed and the auditor left the business.

A few weeks later the contractor received his audit statement and some supporting paperwork from the insurance company. And guess what! Upon closer review the contractor found where the insurance company had included the payment made to her hairdresser in the workers comp payroll base for calculating their audit premium!

Wow! Strange things happen when you run your business out of your personal checking account! What about that payment to the newspaper boy?

Lesson Learned: When it comes to workers comp audits, you have to watch the details! Oh yea…if you’re a sole proprietor…think about keeping your business checking account separate from your personal one. Do you really want an insurance company auditor nosing around your personal account? It just makes things simpler!

Thanks!

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A Simple Audit Error Costs Employer $2,000!

Posted on September 6, 2011 by Randy Sieberg, CIC, ARM, CRM

We recently assisted a small employer who contacted us with a workers compensation audit problem.

He operates a small, family run auto repair garage and has had his workers compensation insurance with the same insurance company for several years. His business operations have not changed and his payroll or remuneration has remained stable. His workers comp policy was audited and shortly after that he received a bill from the insurance company for about $2,000. That may not seem like a lot of money for some people but for a small business owner that can be the difference between getting paid or not for the month!

We discovered that the audit completed this year was a self audit, where he filled out the paperwork and sent it directly into the insurance company. After a quick review of the audit worksheets we discovered the business owners payroll was included in the audit, however he, being a sole proprietor, was excluded in his state from coverage and had not elected to be included.

With a quick assessment of his situation and some communication with the insurance company we were able to make his $2,000 bill go away!

Lesson Learned: Even if you’ve been with the same insurance company for years…it pays to have your audits reviewed! After all , you never know when a $2,000 audit bill is caused by a simple, correctable mistake!

Thanks!

 

Posted in Lesson Learned, Sole Proprietor, Uncategorized, Workers Compensation Audit Problem | Tagged , , , | Comments Off

When A General Contractor Requires A Subcontractor To Carry Workers Compensation

Posted on September 4, 2011 by Randy Sieberg, CIC, ARM, CRM

Here’s a confusing issue. In most states sole proprietors are excluded from workers compensation coverage by statute, not in all, but in most states. The issue comes when a small individual contractor with no employees who is a sole proprietor wants to work for a larger contractor. Most times the larger contractor will require the subcontractor to have a workers compensation policy in place and be included within that coverage.

So what’s up when the sole proprietor is not required by the state to have coverage but the general contractor makes that requirement. Why does this happen?

A few things are at work here. First, when a general contractor hires an uninsured sub, the general contractors workers comp insurance company, at audit time, will pick up the payment made to the sub and charge the general for that exposure. Second, it seems to just be good business to use insured subcontractors. So when a general contractor requires a sub to provide workers comp insurance it may not be because of a state rule or regulation, it may just be the cost of doing business with that general contractor or hiring party!

Lesson Learned: Here’s where I say…remember, workers compensation rules are state specific! Be sure to check with your state authority regarding sole proprietor rules. An example: some states, again not all, allow individual waivers, where an individual may waive their rights under the workers comp statutes. So check with your state!

Thanks!

 

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