Two Areas Of Workmans Comp Premium Overcharges
Studies suggest that an estimated 50 percent of workers compensation insurance policies contain overcharges because of mistakes. It can be easy for a business owner to overlook or misapply significant details, policy complexities, and ambiguous classifications. And that can translate into higher premium payments.
For many companies, workers comp can hover at 20-25% of payroll. For EVERY company, it’s expensive. No business can afford to neglect the rigorous examination of what drives their company costs.
You may wonder, how can these “over-charges” occur? After all, workers comp premiums are all basically calculated the same:
Rate X Payroll X Experience Mod= Premium
But the two factors that can severely impact premiums are experience modifications and premium audits. The good news is that they are controllable.
The Certified Workers Comp Professionals at Allan M. Walker are trained to analyze these factors for you. And they'll do it for free.
In one situation we know of, a school had a 1.88 experience mod. Not only that, their workers comp carrier dropped them. After being advised by a Allan M. Walker Certified Workers Comp Advisor, the school obtained insurance with a projected mod of 1.45 and even received money back on their audit.
A mod impacts your premium like this: If you have a rate X payroll cost of $70,000 and an experience mod of 1.29, your premium will be $90,300. If your mod is reduced to only, 0.79 your premium would be $55,300.
How do experience mods get calculated?
•You, as the insured, provide claim and payroll data
•The insurance company audit department verifies your payroll
•The insurance company claim department adjudicates and reports your claims
•The workers comp bureau promulgates the modification
•The insurance company receives the mod
•The insurance company applies the mod to the policy
•You and your agent receive the mod worksheet
Control Your Experience Modification
What you want to know is the difference between your actual mod—the one that's being applied to the current policy and your minimum mod—the one set for your employee classification code.
For example, in the example above—let's say the 0.79 is the minimum and 1.29 is the actual mod. You can control the 0.50 difference.
So, when you get the experience mod worksheet:
•Verify the accuracy of your payroll by reviewing the premium audit worksheets, your policy and your audit bill
•Verify the accuracy of your claims from your valuation date loss runs
•Check to see if there have been any recoveries or subrogation's that reduced the claim payout
Audit premium is pure profit for the insurance company. There is minimal overhead and no additional claims to offset the additional premiums audits can generate.
A premium auditor has two main functions. He verifies your payroll and provides a description of your business for the insurance company. You provide him with both of those pieces of information.
Unfortunately, mistakes can be made in many areas on the audit. For example: Misclassifying employees resulted in a $126,017 overcharge for one employer discovered by a Allan M. Walker Certified Work Comp Advisor. Other areas where overcharges can occur are:
•Placing unclassified employees in the highest rated class code
•Including remuneration that can be excluded from payroll (like overtime and vacation pay)
•Including payrolls for subcontractors that could be excluded because they have insurance for themselves
To prevent this from happening, take the following six steps:
1.Be prepared for the premium audit in the same way your CPA prepares you for an IRS audit
2.Build an overcharge-proof audit package before the auditor arrives
3.Review the most current list of audit “excluded remuneration”
4.Think how you can make a minor job duty or physical plant change to qualify an employee for a lower cost classification
5.Complete a premium audit checklist to confirm you’re not overpaying, after the audit
6.Obtain copies of the auditor’s worksheets and review them against your records and the official premium audit bill
Prevent Premium Overcharges
The seasoned Certified Workers Comp Experts at Allan M. Walker Insurance Agency will professionally analyze your workers comp policy for free. We only ask that you make us the agent of record.
This will enable you to take control of your workers comp costs through our premium reduction analysis and activities like those mentioned above. Our program also includes suggestions for mitigating claims and back to work practices. These can further reduce your premium because they can lower your experience mods.
Contact Allan M. Walker Insurance Agency today and get a firm grip on your workers compensation costs.