What happens when an employer fails to respond to an audit request by his insurance company? It’s called an unresponsive audit and can have a long reaching effect on a business owner. Let’s see what this is about.
Actual premium for a workers compensation policy is not determined until an audit of the expiring policy period has been completed. That’s because the policy sold to an employer is based only on a projection of payroll incurred during the policy period. The formula is premium = rate x payroll / 100. So you don’t know what the payroll is until the policy has ended and an audit has been completed.
An employer agrees to have an audit completed when they buy the policy. It’s part of the insurance contract, the insurance company will pay claims if the employer will pay premium, get it? And the audit is part of the premium process.
So when an employer fails to have an audit completed it causes a problem. It’s the breaking of a promise. Now you have an insurance company who has provided coverage for the employers workers throughout the policy period but is now prohibited from determining the final premium because the employer will not allow the audit to be completed.
What can an insurance company do?
- Cancel The Current Policy: An insurance company will look at the refusal to complete an audit as a failure of the employer to meet their obligations as outlined in the policy provisions. Since the original policy period has expired the only leverage they will have is to cancel the current policy. And they will do this.
- Conduct An Estimated Audit: Just because the employer has decided not to allow an audit to be completed doesn’t mean that one will not be done! That’s right, it’s called an estimated audit and will be completed by the insurance company without any input from the employer. Estimated audits are nothing but trouble! Most of the time an estimated audit will be some allowed multiple of the original projected payroll. The automatic adjustment can be from 25% up to 300%!!
- Produce Additional Premium Invoice: Once an estimated audit has been completed the insurance company will produce an invoice and send it to the employer for payment.
- Turn Over To Collections: If the employer does not pay the additional premium bill their account will be turned over for collection. This includes all the good things that come along with dealing with a collection agency.
- Bring Suit Against The Employer: This is a trend we’ve seen over the last few years. If the insurance company has any idea that the employer has acted in a fraudulent manner they may bring fraud charges against the employer and sue for damages.
- Notify Advisory Organization Of Unpaid Balance: Depending on the type of policy involved, notification of an unpaid balance to the advisory organization may result in the employer not being able to secure coverage through another source until the outstanding balance has been taken care of.
I’m sure there’s more an insurance company can do when an employer is uncooperative in having their audit processed but these are the ones that easily come to mind.
What’s the lesson learned? Don’t mess around when it comes to audit time and follow through with the process. If you think there’s a problem with your audit after it’s completed then look for some outside help and have an audit review conducted.
Hope this helps out!
Topic Menu: Workers Compensation Audits
- Preparation –
- Common Errors and Mistakes –
- Issues, Penalties and Problems –
- How to Dispute an Audit Problem –