I write often about the existence of poor communication between insurance carriers, agents, insured employers and auditors but one area that constantly creates problems for an employer is the mid-term cancellation of a policy. And it really shouldn’t…
Mid-term cancellations are typically caused by two situations. The first is when the insured employer requests their policy be cancelled during the policy period. The second is when the insurance carrier cancels a policy for non-payment or other reason during the policy period. Both situations create issues that must be carefully followed or the process can get out of hand.
I’m not going into the details of this process in this blog but if you are an insured employer here’s a few of the common problems associated and some issues to keep in mind about the mid-term cancellation process:
- Improper Request to Cancel; So many times an insured will just stop paying their work comp bill thinking this is all they have to do to cancel the policy. Not paying your bill will cause the policy to cancel but will also cause problems. If you are an insured and need to cancel your policy contact your agent and make a written request to cancel the policy. You will probably be asked to sign a cancel request or policy release form which is looked at by the insurance carrier as the correct way to request the cancellation.
- A Cancellation Audit; The clock keeps ticking on a workers compensation policy. Remember these policies are payroll or remuneration based with the original policy set up using a deposit premium based on a projection of what your payroll or remuneration exposure would be for the next policy period. When a policy is cancelled, either by request of the insured or by the insurance carrier, a cancellation audit will need to be conducted.
- Cancellation Penalties; A consideration for an insured. Insurance carriers may be allowed to apply short rate cancellation factors to a policy if cancelled by request of the insured during the policy period. Be sure to check into the effect this penalty may have on the amount of premium you may owe.
- Policy Endorsements; When an insured has completed the audit process for the prior policy period and there was a increase of exposure in the form of payroll or remuneration, the insurance carrier will more than likely endorse the current policy period to reflect the audited exposure base from the prior policy period. This means any additional premium generated by an endorsement increasing the exposure base will then be added to the current policy and possibly creating an unknown additional earned premium at cancellation. This happens often but especially when an insured cancels their policy after it has renewed and after the audit was completed for the prior year. This is a situation that must be reviewed.
- Earned Premium and Accounting Issues; When a policy is cancelled by the carrier for non-pay the insured may find themselves faced with owing not only premium generated from the cancellation audit but from any outstanding unpaid premium previously billed.
- And this is just a short list of those items that should be review for accuracy!
Communication of the steps of a policy cancellation are critical. Insurance carriers are known for sending cryptic documents to their insureds and insured employers are known for not reading the documents they have receive! Like I mentioned, there’s a lot of details found in a mid-term cancellation of a workers compensation policy! Just because an insured employer doesn’t understand the process doesn’t mean the process or bill they received are wrong…but it doesn’t mean it’s right either!
Lesson Learned: Remove the confusion and be sure to have cancellation audits reviewed by an outside source.
I hope this helps you out! Thanks!