Audits continue to cause many employers problems and, in one way, it’s somewhat understandable. The audit process can be foreign to employers who have never been through one before and just as confusing to those seasoned employers when something goes wrong. Let’s take a look at why some employers seem to always be caught off guard during the audit and talk about some tips for gaining a better understanding of the audit process.
Here are a few reasons employer/policyholders are caught off guard:
- The employer/policyholder was never informed that an audit would occur when they bought the policy. – Believe it or not this is one of the single most problematic situations we encounter at our firm. Where we are contacted by an employer who was not schooled by their agent that the audit would occur.
- The employer/policyholder doesn’t understand the pricing mechanism of a workers compensation policy. – They were never informed that premium they pay up front when securing a policy is only the deposit premium to be adjusted at a later date.
- The employer/policyholder doesn’t understand why they must comply with the audit process. – They were never informed that when they purchased the policy they were agreeing to the terms and conditions set forth in the policy.
- The employer/policyholder does not want to provide the payroll information requested by the auditor. – Again, never informed as to the policy conditions and terms they agreed to when they purchased the policy.
- Faced with an additional final premium statement from the insurance company. – The employer is caught in the pitfalls of the premium generating mechanism having not been informed how it all fits together when they purchased the policy.
Are you beginning to see a trend here?
An employer should NEVER be surprised by the requirement of audit! If they are, them someone along the line didn’t do their job!
No, I’m not going to lay the blame at the feet of the insurance agent or broker. Frankly, most agents and brokers do a great job of educating their clients how the workers compensation premium generating mechanism works. They do a good job of teaching their clients what to expect and how to prepare for the audit. Of course there are some folks out there who don’t do such a good job and my single comment to those would be learn more about what you’re selling and take responsibility to educate your clients.
But a larger problem comes where an employer is allowed, or in some cases is required, to purchase their coverage on-line. It’s hard for small employers to secure coverage and often on-line purchases are the only method available to them. When the employer is left on their own to act as their own agent things get messed up!
So, if you are an insurance agent, here’s a few tips:
- Be sure you thoroughly educate your client on the audit process, why it happens, what to expect and how to prepare.
- If you are unfamiliar with the process, spend a little time on our website or go to other educational sites and learn what it’s all about.
- Make sure your client knows that rating exposure, what’s used to generate premium, consists of much more that just “payroll.” That it’s really remuneration that an auditor gathers.
- Finally, don’t leave your client out there to fend on their own! It won’t be good for anyone involved!
If you are an employer/policyholder consider these tips:
- Be aware that the audit is a condition of the policy, that when you bought the policy you agreed to the conditions and terms.
- Keep in mind that non-compliance with the audit is a breach of contract. That’s right! The insurance policy is a contract and if you fail to comply with the audit process you may be exposed to civil action.
- The policy gives the insurance company the right to inspect “your records.” Not only for the current year but as far back as three years.
- Learn what consists of rating exposure. Payroll is just a part of the remuneration, or rating exposure, that an auditor is there to gather.
- Finally keep in mind that insurance carriers take “insurance fraud” very seriously! As they should! Comply with the audit request and don’t manipulate or provide false information. There are consequences!
Our firm works with employers providing them with help when audits go bad. But, for the most part, audits seem to work as best they can. Having an audit go smoothly starts with education about the audit process and gaining an understanding of the responsibilities imposed when an employer purchases a workers comp policy.
I hope this post has been of some help! And thanks for reading!