Wow! Time and time again we are approached by an employer whose workers compensation insurance company has deemed them to be non-compliant in completion of their workers compensation audit. So what’s it take to be compliant? What’s it really mean to be noncompliant or uncooperative? What’s the repercussion associated with this action? Let’s talk!
How would you like to have your insurance company send you a bill after your policy has ended for an additional premium of 300%? Yep! Some states allow an insurance company to apply a 300% increase in exposure base (ratable payroll) to policies where the employer (policyholder) is deemed noncompliant with their audit. So to tell an insurance company to go jump off a cliff just because you don’t want to complete their audit process may result in significant penalties!
Mostly that last paragraph was mostly just to get your attention. Does it happen? Yes. But for the most part you’ll find the insurance company just wants to complete their audit process so they can develop the final premium on the policy, collect any additional premium or return unearned premium based on the outcome of the audit.
Let’s look at some specifics:
State Noncompliance Charge
- Alaska Up to 200%
- Arkansas Up to 200%
- Arizona 200%
- Colorado Up to 200%
- Connecticut Up to 200%
- DC Up to 200%
- Georgia Up to 200%
- Hawaii 200%
- Iowa Up to 200%
- Illinois Up to 200%
- Kansas 200%
- Kentucky Up to 200%
- Louisiana Up to 200%
- Maryland Up to 200%
- Maine Up to 200%
- Mississippi Up to 200%
- Missouri Up to 200%
- Montana 100%
- Nevada Up to 100%
- New Hampshire Up to 200%
- New Mexico Up to 200%
- Oklahoma 200%
- Oregon Up to 200%
- Rhode Island Up to 200%
- South Carolina Up to 200%
- Tennessee Up to 200%
- Utah Up to 200%
- Virginia Up to 200%
- Vermont Up to 200%
- West Virginia Up to 200%
This is a partial list. Just because your state may not be listed does not mean they don’t allow noncompliance charges to be applied!
So consider this, if your estimated premium at the beginning of your policy period was $3,000 and your business is located in Missouri and you do not comply with the insurance carriers request to complete the audit, your insurance company is within their rights to close your audit, mark it non-compliant and send you an additional premium bill of up to $6,000. That’s 2x’s the Estimated Annual Premium on your policy!
Do insurance companies really do this? Yes they do.
Certainly some insurance companies are better at sticking to the rules and make sure they apply this factor, if you snub them, at audit time. And when they do apply the Audit Noncompliance Charge, ANC, they will be allowed to collect it.
There are rules the insurance company must to follow in order to apply this charge. Those rules may differ from state to state. And those rules will, for the most part, include these types of conditions:
- The insurance will have to comply any special audit rules the state in question may apply;
- There must be some type of endorsement attached to the employers policy that outlines the application of this charge. That endorsement will spell out the conditions when and how the insurance company can make the charge.
- There will be some kind of requirement as to how many attempts the insurance company must make to conduct the audit.(If you’ve ever wondered when an auditor contacts you why they seems to be in such a hurry to complete the audit and get it submitted to the insurance carrier this has a lot to do with it.)
- There will be some kind of requirement as to the type of documentation the insurance company must keep to prove the non-compliant status.
What’s it take to be deemed non-compliant? Here’s a few things:
- Not responding to the requests made to conduct the audit;
- Making appointments with the auditor but not showing up;
- Not providing or the inability to provide the auditor with the proper documentation required to properly determine the rating exposure of the policy.
Why do you have to provide records? In a standard workers compensation insurance policy look for the section titled “Part Five – Premium, Item F – Records.” It’s here where you’ll find the policy says something like this; “ You will keep records of information needed to compute premium. You will provide us with copies of those records when we ask for them.” So Item F tells you that you have to keep records and provide them when asked.
What records are they talking about? Under the same “Part Five – Premium” look for “Item G – Audit.” It’s in this section where you’ll find the wording that goes something like this: “Records may include journals, ledgers, contracts, registers, payment vouchers, tax reports, payroll records, disbursement records, including computer programs used for storing and retrieving such records.”
What else can the insurance company do when an audit is deemed non-compliant? Another problem an employer may encounter when non-compliant is that the insurance carrier may, under certain circumstances and where allowed by state law, cancel the employers policy. Another possible situation is where the insurance doesn’t cancel the policy but will tag the policy to be non-renewed. Either one of these situations could cause the employer to find themselves unable to secure workers compensation coverage with an other insurance company.
So there you go. The workers compensation policy pretty well lines out what your responsibilities are during the audit process.
Did I forget to mention that a workers compensation policy is a contract? Sure, it’s an insurance contract, but a contract none the less. It contains promises and conditions. And it’s within those conditions where an employer agrees to live up to their responsibilities of making sure they complete the audit.
- When you buy a workers comp policy you agree to certain conditions found within that policy and one of those conditions is to allow the insurance company examine your records that relate to the policy in question.
- The audit is a process used to determine the final premium for the workers compensation policy.
- Certain records must be maintained, produced and shown to the insurance company auditor when asked.
- When an employer fails to live up to their responsibilities of completing the audit there may be financial consequences.
- The insurance company may be able to levy an audit noncompliance charge, ANC, against the employer for failure to comply with the audit process.
- Audit noncompliance charges can in some cases be as much as 300% of the estimated premium on the policy.
- There are certain conditions an insurance company must follow in order to apply an audit noncompliance charge. This will vary state to state.
- The insurance company may cancel the employers policy or they may set the policy up to non-renew. Causing the employer to be unable to secure coverage elsewhere.
An employer can avoid this whole mess by simply fulfilling their responsibility of meeting with the insurance company auditor when requested and providing the books and records they ask to review.
Hope this helps you out! And thanks for reading!