Understand the Premium Audit Process for Workers' Comp

Learn the Premium Audit Process for Work Comp! We go over what to expect during the process, how an audit can impact premium, what documents your insured will be required to prepare and more.

Timestamps:

00:00 Start
02:20 What is the Purpose of a Work Comp Audit?
03:40 Business Operation Changes
11:20 What Should the Insured Know?
13:34 How Does the Audit Work?
16:03 What Information will be Required?
16:44 What if Your Insured Doesn't Respond to the Audit?
18:50 What About Audit Disputes?
20:04 Best Practice Approach for Final Audits

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What is the Purpose of a Work Comp Audit?

A workers’ comp audit is an annual review of actual payroll and tax records performed at the request of an insurance company.

The audit process ultimately determines the final cost of any workers’ comp policy after the policy period ends.

A workers’ comp audit is a check-up to make sure the carrier has the most up-to-date information on the company and employees.

Business Operations Change… a lot can happen in a year

Did they expand?
Hire new employees?
Train old employees to perform different tasks
Reduce staff?
Subcontractor exposures?

What Should the Insured Know About a Work Comp Audit?

A premium audit will be performed after each policy period expires in order to verify payroll, class codes and sub-contractor exposure.

Important when working the upcoming renewal to remind your insured that they will be receiving their audit reporting request.

Workers’ comp audits start with a request for payroll documentation, but may also require a phone interview, in-person review, or some combination.

How Does the Audit Work?

Before the end of the policy term, the insured will receive a premium audit information request directly from the insurance company.

This request will detail all information needed to be provided to verify payroll and class codes.

Carriers generally give the insured 30 days to comply with the necessary information.

In addition, a phone or in-person interview may be required to verify information submitted.

Final audits can take 30-90 days for the carrier to process.

If additional premium due, most carriers will offer a payment plan if needed.

What Information will be Required?

Payroll summaries for the policy period
Payroll tax reports
IRS Form 941 for last four files quarters

What if Your Insured Does Not Respond to the Audit?

Non-compliance will cause the renewal policy to go into cancellation.

The carrier will estimate the final audit with all payroll in the highest rated class code.

Some carriers will instead add a costly audit non-compliance charge.

Carrier will bill the insured for the final audit increased premium.

Endorse increased payroll on the current renewal policy for accuracy.

How Does Insured Resolve Non-Compliance with the Audit?

Immediately comply with carrier request for payroll documentation and any audit questionnaires to be completed.

Some carriers require a phone interview, in addition to the request for audit information. Compliance is mandatory.

On larger premium policies, carriers will require a in-person review of accounting records.

What About Audit Disputes?

The audit payroll does not match what you reported.
The payroll is distributed differently by class code
The owner’s payroll is included in the final audit.
A formal audit dispute letter must be sent to carrier.
Include supporting documentation for the audit dispute.

Questions? Reach out to us at [email protected].

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CID Insurance Programs is a Wholesale Brokerage specializing in commercial insurance products designed for the business clients of independent and captive insurance brokers. Our wholesale insurance products encompass a broad range of preferred risks to manageable hard-to-place risks. We have gained success and recognition in helping insurance brokers build their commercial book of business.