Many employers become enticed by the idea that they can get workers comp coverage at reduced prices. Sometimes significantly below what they are currently paying! Lured by the spectre of reduced cost they change their policy to another agent or company only to be caught up later with big problems when they find out at audit that the final cost of their policy is much more than they were told…or sold! How can this happen?
Workers compensation deposit premiums can be manipulated in many ways. I think the key here is the term “deposit.” My Webster’s Handy Pocket Dictionary defines “deposit” as “2. give as partial payment.” Unfortunately, many times, that word doesn’t get passed along during the sales part of securing a workers compensation policy. An agent or sales person more than likely mentions it in their presentation but the client employer doesn’t necessarily hear or understand the word. Rather the client employer hears the word “premium” and assumes the deposit premium is the premium. Wrong!
It’s at this point that an experienced agent or broker will describe to their client the audit process, why it happens and how it works. The last thing most agents want is to have their client at the end of the policy be hit with a large unexpected audit premium!
So back to manipulation of deposit premiums. Deposit premiums are developed by:
- Determining the appropriate class codes for an employers business;
- Determining the appropriate rate for those codes;
- Applying the payroll provided by the employer to the rate for those codes;
- Applying other appropriate rating factors;
- And calculating the deposit premium.
Do the words Insurance Fraud mean anything to you? Mistakes do happen when compiling rating data for a policy.
- The agent may incorrectly classify the business operations using a lower rate inappropriate code that is caught and corrected at audit.
- The employer may provide inaccurate or mistaken payroll information to the agent.
- Payroll for included classes of employment such as corporate officers, LLC members or included family members may be mistakenly left out.
- There’s more…
But purposeful actions to reduce or misrepresent correct classification codes or payroll on the part of an employer or agent may be construed, under certain circumstances, as a fraudulent act.
Mistakes like these can lead to failure of the policy because at audit the mistakes are usually caught. Ultimately leading to large unexpected audit bills, possible unpaid balances and potential cancellation by the insurance carrier.
The Take Away: It’s important to have a workers compensation policy set up correctly. Sure mistakes happen but if you are an employer, agent or broker learn how your policy works and don’t be caught off guard!
Hope this helps you out! Thanks for reading!