Workers Comp Corrections Could Indicate Even More Trouble
There is something about corrected audits or mid-term policy revisions that increase the likelihood of errors. We always say the frequency with which errors occur that increase our clients' premiums are sufficient enough to allow us to perform audits on a contingency-fee basis. But, it seems the error rate is even higher after corrections have been processed by insurance carriers. So, it's very important to review "corrections" even if they produce reduced or returned premium. It could very well be that you are owed more, and this is one of the reasons we list mid-term endorsements as a "red flag."
Recently, we disputed a couple rating elements for a customer for which the work comp carrier endorsed changes and issued a policy revision. Even though total policy premium was reduced, the amount wasn't what we were expecting. Somehow the Premium Discount was removed and, on this policy, it was a substantial oversight ($70,000). Premium Discount is a standard element in most work comp policies including guaranteed cost and deductible programs. There's an endorsement in the policy with at table indicating how much of a discount you get depending on you premium level. This discount was included in the customer's proposal and original policy. We are now in the process of having this new error corrected.
Not Your Typical Experience Modification Rate Error
Experience Modification Rate Case Number One
Twice in the last year while performing experience modification rate reviews Cytron Group LLC has discovered experience mod errors for clients only to have similar, peculiar things happen; the “corrected” audits come back with new errors unrelated to the errors that triggered the revisions in the first place.
In one case a client had already received a refund on an audit due to lower than estimated payroll for the year. However, their NCCI Experience Modification Rate was wrong. We obtained a revised, lower mod factor that resulted in another refund for our client. However, the refund wasn’t what was expected. In reviewing the revised audit we found that the Terrorism Surcharge had changed to 5% from 1.5%, and this is what accounted for the smaller than anticipated refund. 1.5% is what was on the policy and the original audit. How it changed I have no idea, but we were able to correct that as well.
Experience Modification Rate Case Number Two
In another case we similarly found an experience rating error, obtained a revised NCCI Experience Mod, and received a revised audit for our client. The refund, however, was a few thousand dollars less than anticipated.
This audit revision contained an error that I hadn’t seen before. The “corrected” audit changed the order in which they applied the various rating elements. The order (or premium algorithm) used to apply these rating elements to determine premiums is set for work comp insurance: Payroll x Rate x Experience Mod x Contractor’s Credit x Schedule Rating and so on. That is simplistic, but you get the picture I’m sure. If you change the order you apply some of these elements, you can change the premium.
This well-known carrier multiplied a deductible credit against the wrong amount and the “premium discount” against the wrong amount. Both had the effect of increasing premium, or, in this case, reducing the refund owed to my client. Of course, we corrected this for our client too but not without a lot of effort.
Workers Comp Refund? Good Indicator That You Maybe Be Owed More
Just remember that a comprehensive work comp insurance audit is a lot more technical than just properly classifying and determining payroll. And, even though you received a refund from your annual payroll audit or from a corrected rating error, it doesn’t necessarily mean you received everything you were actually owed.
Stuart Cytron, MBA has been published in trade journals such Construction Forum St. Louis and St. Louis Business Journal among others. You can read more about Stuart and how he developed a passion for helping businesses reduce work comp expenses on his website.