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New Workers’ Compensation Rate Filing Expands COVID-19 Surcharge Tiers

workers' compensation

The California Workers Compensation Insurance Rating Bureau has amended its 2021 rate filing to make its earlier recommended COVID-19 surcharge more equitable.

The Rating Bureau is leaving unchanged its overall recommendation that benchmark rates be increased an average of 2.6% for policies incepting on or after Jan. 1, 2021.

But it modified an earlier recommendation that a COVID-19 surcharge of $.06 per $100 of payroll be applied to all policies in favor of a six-tiered surcharge ranging from one cent per $100 of payroll for the least-risky sectors to a high of 24 cents for the riskiest. All sectors will be placed in one of six tiers depending on their relative share of COVID-19 claims that had been filed through the end of August.

The Insurance Department just wrapped up hearings on the rate filing in early October and will announce whether it approves the rate filing or makes changes.

Had the pandemic not hit, the Rating Bureau would not be asking for a rate increase, but a reduction of 1.5%. The Rating Bureau estimates that estimate that the cost of COVID-19 claims on Jan. 1, 2021 to Aug. 31, 2021 policies is 4.1%, or $0.06 per $100 of payroll to an average of $1.56 per $100 of payroll.

The benchmark rates (or pure premium rates) are published as guideposts for insurers to price their policies and insurers are not required to follow them, although most do to some degree.

While the Bureau earlier said it would not apply COVID-19 claims towards employers’ individual experience modifiers (X-Mods), the surcharge will apply to all employers, even those who have not seen any coronavirus-related illness claims.

Below is a list of the six different surcharge tiers and some of the NAIC industry class codes that would fit into each of them. (Please note that the two digits are the first two numbers of four-digit class codes and all class codes that start with those two digits will see the surcharge applied, unless otherwise noted with a four-digit code).

1 cent

  • Management of Companies and Enterprises (55)
  • Information technology (51)
  • Professional, Scientific, and Technical Services (54)

3 cents

  • Outside Sales (8742)
  • Finance and Insurance (52)
  • Clerical (8810)
  • Mining, Quarrying, and Oil and Gas Extraction (21)
  • Arts, Entertainment, and Recreation (71)
  • Real Estate and Rental and Leasing (53)

6 cents

  • Administrative Support and Waste Management and Remediation Services (56)
  • Wholesale Trade (42)
  • Construction (23)
  • Educational Services (61)
  • Manufacturing (31)
  • Other Services (except Public Administration) (81)

12 cents

  • Public Administration (92)
  • Retail Trade (44)
  • Transportation and Warehousing (48)

18 cents

  • Accommodation and Food Services (72)
  • Agriculture, Forestry, Fishing and Hunting (11)

24 cents

  • Healthcare and Social Assistance (excluding Physicians, Dentists, and Daycare) (62)

The surcharge in many cases amounts to a roughly 30% increase over the indicated rate without a specific surcharge.

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Alert: New Law Creates COVID-19 Workers’ Comp Framework

outdoor workers

Governor Newsom has signed legislation that creates a new framework for COVID-19-related workers’ compensation claims.

SB 1159, which takes effect immediately, partly replaces an executive order that Newsom made on March 18 and which expired on July 5. That order required all employees working outside the home who contracted COVID-19 be eligible for workers’ compensation benefits.

The new law also creates a rebuttable presumption that all cases of COVID-19 among front-line workers be considered work-related for workers’ compensation purposes. Finally, the law creates a rebuttable presumption that a workers’ COVID-19 diagnosis is work-related when there was an outbreak in their workplace during the prior 14 days.

The new law is retroactive to July 6, the day after Newsom’s executive order expired, and is set to expire Jan. 1, 2023.

SB 1159’s presumption that an illness or death resulting from COVID-19 has arisen out of and in the course and scope of employment, can be disputed by the employer if they have:

  • Proof of measures they put in place to reduce the potential transmission of COVID-19 in the workplace,
  • Evidence of the employee’s non-occupational risks of contracting COVID-19,
  • Proof of statements made by the employee, or
  • Any other evidence normally used to dispute a work-related injury.

Employers with fewer than five employees are exempt under the statute.

The law also requires new reporting provisions to allow workers’ compensation claims adjusters to track cases to know when the presumption applies and requires a faster review of claims to accept or deny compensability than is typical.

SB 1159’s three parts

The first part codifies Newsom’s prior executive order that provided a rebuttable presumption of work-relatedness to all employees working outside of the home that contracted COVID-19.

The second provides a rebuttable presumption that front-line workers (like firefighters, law enforcement officers, health care workers, home care workers, and IHSS workers) who contract COVID-19, contracted it in the workplace.

The third creates a rebuttable presumption that worker’s COVID-19 diagnosis is work-related within 14 days of a company outbreak. Under SB 1159, an outbreak is defined as when four employees test positive at a specific place of employment with 100 or fewer employees and, for larger places of employment, when 4% of the employees test positive.

It’s also deemed a workplace outbreak if the employer had to shut down due to a coronavirus outbreak.

Reporting requirements

Under the new law, when an employer “knows or reasonably should know that an employee has tested positive for COVID-19,” they must report to the insurer the following information within three business days, via e-mail or fax:

  • The date the employee tested positive.
  • The address or addresses of the employee’s specific place(s) of employment during the 14-day period preceding the date of their positive test.
  • The highest number of employees who reported to work at the employee’s specific place of employment in the 45-day period preceding the last day the employee worked at each specific place of employment.

The Rossi Law Group has the following recommendations for employers in California:

  • Keep track of all locations each employee works at, the number of employees on each day at each location, as well as a log of those that test positive (including the date the specimen was collected).
  • If you are aware of any staff who have tested positive between July 6 and Sept. 17, you have 30 days after Sept. 17 to report the positive test to the administrator and include the same information as in the bullet points above.
  • You must also report to the administrator positive COVID-19 results for employees that are not filing claims. In that case, you must omit personal identifying information of the employee.
  • Provide any factual information to the administrator that could help rebut any claim of work-relatedness.

The law also has some teeth: Anyone who submits false or misleading information shall be subjected to a civil fine up to $10,000.

One last thing…

The governor also signed into law AB 685, which requires employers to report an outbreak to local public health officials. Employers must also report known cases to employees who may have been exposed to COVID-19 within one business day.

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New Emergency Workers’ Compensation Rules Take Effect

Workers' Compensation Policy

The Department of Insurance has approved emergency workers’ compensation rules dealing with COVID-19 and California employers.

The rules were recommended by the Workers’ Compensation Insurance Rating Bureau to bring fairness for employers’ experience rating during the COVID-19 pandemic amid shelter-at-home orders and for dealing with claims of workers who contract COVID-19 on the job. The following new rules took effect July 1:

1. Classification changes for staff working from home

As a result of the California stay-at-home order, many employers have altered employees’ duties so they can be accomplished from home, and often those duties are clerical-like in nature.

Under the rule, an employee can be assigned payroll classification code 8810 if:

  • Their duties meet the definition of a “clerical office employee” while working from home, and
  • Their payroll for the balance of the policy period is not assignable to a standard classification that specifically excludes clerical office employees.

There are a number of other classifications that already include clerical operations in their definitions, and those classifications would not be eligible for a change.

If you are reclassifying any employees to 8810, make sure to document all changes and maintain records of those changes. This rule is effective for as long as the statewide state-at-home order by Gov. Gavin Newsom is in effect, and 60 days after the order is lifted.

2. Non-working, paid staff

Salaries paid to workers who are at home not working, yet still collecting a paycheck, will be excluded from payroll for workers’ comp premium calculation purposes when the payments are less than or equal to the employee’s regular rate of pay.

Again, make sure you document these payroll disbursements and maintain records to show they were not working, so that they are not chargeable to your workers’ comp policy.

3. COVID-19-related claims

All claims directly arising from a diagnosis of COVID-19 shall not be reflected in the computation of any employer’s experience modification.

The Rating Bureau said in proposing this change that the since the occurrence of COVID-19 workers’ compensation claims are unlikely to be a strong predictor of future claim costs incurred by an employer, their inclusion in X-Mod calculation would not meet the intended goal of experience rating.

The takeaway

Now that these rules have taken effect, if you are having employees work from home you need to assess if the duties they are performing are largely clerical in nature and discuss with your carrier or us whether you should change the code to reflect their new duties and reduced risk of occupational injury or illness.

You will need to document those changes and keep careful records, as the change would likely affect your premium.

Additionally, under a second Newsom order, it will automatically be presumed that any employee who is working on-site and contracts COVID-19 caught the virus in the scope of their work.

Those claims will be eligible for workers’ compensation benefits under the order. But under the Insurance Department’s decision, any COVID-19 workers’ compensation claims will not affect an employer’s experience and X-Mod.

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Adjustable Workstations Key to Reducing Injuries

construction workers

Musculoskeletal disorders from manual labor in factories, construction, printing and warehouse work are one of the most common types of workplace injuries and account for one-third of all workers’ compensation costs.

These injuries take a profound economic toll on both workers who suffer these injuries and on employers who pay more for their workers’ comp premiums. There are also indirect costs, such as training replacement personnel, retraining workers, lost productivity and reduced morale.

To reduce the chances of MSDs among your workers, make sure their workstations are ergonomically designed and optimized for safety and efficiency of use.

One of the best ways to reduce these types of injuries is to ensure that workers of different sizes and physical limitations can work in the same area without straining themselves and developing an MSD.

The height of the work area is a significant factor in these types of injuries. Usually the height is stationary, but one size does not fit all. Someone who is too short or too tall for a standing work area will have to strain to work in a position that is not optimal.

The adjustable workstation

While for some workstations a standard size cannot be avoided, in many cases it’s best to have workstations with adjustable heights. Height adjustability is useful not only for very tall or very short people, though.

For specific tasks, the ability to adjust the bench top to the application may help workers of all sizes execute tasks more ergonomically.

An adjustable workspace can accommodate the majority of workers in ways that reduce stresses and strains, whether they differ by height, reach capabilities, strength or flexibility. If you have an adjustable workspace, a tall and short worker can use the same work area by simply adjusting the height when they start their shift.

Avoiding neck strains

Besides a workspace that moves up and down, you should also make sure that the worker doesn’t have to strain to read documents or screens or type on a keyboard, such as when they are sitting on the surface of the workstation.

While this may seem like a small thing, a worker who has to look down at an extreme angle at papers or a screen on a table every day for years can develop neck disorders and injuries. They may not be as severe as a sprain or a strain, but they can still impair the individual’s ability to work ― and over time could require surgery and rehab.

Sometimes the solution is simple, such as using a height-adjustable arm to hold documents or a screen. You can also have an articulating keyboard tray that moves up and down so the worker can adjust it at an optimal height and not have to strain to type.

These solutions are inexpensive and will reduce the chances of employees straining to read documents or screens or type. Using these simple tools will also make your workers more efficient. Like height adjustability, these arms will work for people of various heights and sizes.

The takeaway

The key to ergonomics is to make the environment fit the worker, not vice versa. This can be accomplished in many ways, ranging from facility design to equipment specification to process design.

By homing in on the workstation, you can greatly reduce the chances of your workers developing an MSD.

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Workers Get Workers’ Comp Presumption for COVID-19

covid-19 workers

California Gov. Gavin Newsom has issued an executive order requiring that workers who either test positive for COVID-19 or are diagnosed by a physician as having coronavirus are eligible for workers’ compensation benefits.

The order means that it will automatically be presumed that the employee contracted the virus on the job if they test positive or receive a diagnosis within 14 days of their last shift.

Additionally, the employee must have been working at a worksite and not from home to qualify, and the diagnosis must be confirmed by testing within 30 days of the original diagnosis.

The order covers any worker that reports to a worksite, including “essential workers,” which include those in health care, emergency services, trucking, construction, food, warehousing, delivery, and more.

Workers’ comp benefits include partial wage replacement for any missed time from work, as well as covering all related medical costs and death benefits for their family should the unthinkable happen.

If the employer believes an employee didn’t contract the virus at work, they will have the burden of proving the individual contracted the virus elsewhere, which would be a difficult endeavor.

The rule is temporary and will cover cases dating back to March 19. It will sunset on July 6 (60 days after the announcement was made on May 6).

No adverse X-Mod effects

While the order will make it easier for essential workers to file workers’ comp claims, employers do not have to worry about the effects on their workers’ compensation claims experience.

That’s because the Workers’ Compensation Insurance Rating Bureau has proposed its own rules that would exempt any COVID-19 claims from an employer’s claims history, so that it would not affect their experience modifier (X-Mod).

That means if an employer has any workers who file COVID-19 claims, their premiums would not rise due to those claims.

The proposal will be reviewed by the Department of Insurance in May and it’s likely, according to industry observers, that it will be approved. It too will sunset 30 days after shelter-at-home orders are lifted.

The Rating Bureau estimates that the cost of COVID-19 workers’ compensation claims in California could range from $2.2 billion to $33.6 billion annually. A mid-range estimate of $11.2 billion would equate to more than 60% of all California workers’ comp annual claims before the pandemic.

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Protecting Your Workers During the Pandemic

covid-19 workers

If you are one of the companies that has been deemed an essential employer and are remaining open during stay-at-home orders, you should be doing all you can to protect your workers against contracting COVID-19.

While some workers are really on the front lines of fighting the disease, like health care workers and emergency services personnel, there are many other people working in factories, grocery stores, warehouse and transportation, among other industries, that are also at risk to varying degrees.

The response to this has been varied. Some employers have taken steps to protect their workers. For example, some grocery stores have supplied cashiers with masks, face shields or plexiglass barriers between them and customers.

But not all employers are taking those steps and that’s ignited worker protests through a swath of industries:

  • After a mechanic tested positive for COVID-19, half the employees at his workplace stayed home to press the employer to clean the entire worksite before they would return.
  • Workers staged a walkout at a truck manufacturing facility because the company was not supplying them with hot water for washing their hands.
  • Bus drivers went on strike, saying the city they work for wasn’t doing enough to protect them.
  • 200 employees walked out of one warehouse after a worker tested positive for COVID-19.

Employers need to be careful, as failing to provide adequate protections against coronavirus to their workers could result in lawsuits and subsequent penalties if OSHA decides to strictly enforce its General Duty Clause.

What you can do

Facilities will vary in their own risks, but the following are some general areas that all employers should consider to reduce the risk or spread of infection in their workplaces, regardless of whether they are a large high-traffic facility like a food warehouse or a small hardware or specialty grocery store:

Providing personal protective equipment — This can range from gloves and masks to face shields.

Protective barriers or partitions — These could be partitions made of plexiglass so workers can communicate and make eye contact.

Air circulation — If you have fans or air conditioning units blowing, take steps to minimize air from fans blowing from one worker directly at another.

Spacing — Require employees to work at least 6 feet apart.

Hygiene — Place handwashing stations with hot water and soap or hand sanitizers with at least 60% alcohol in multiple locations, in order to encourage good hand hygiene. Also urge workers to avoid touching their faces.

Customer handling — Use rope-and-stanchion systems to keep customers from queueing or congregating near work areas. Mark spots on the floor spaced 6 feet apart to ensure social distancing.

Consider restricting the number of customers allowed inside the facility at any point in time. Also, consider options for increasing in-store pickup or delivery to minimize the number of customers shopping in store facilities.

Cleaning — Disinfect frequently touched surfaces in workspaces as well as doorknobs, buttons and controls. If you have customers entering your facilities, disinfect all public-facing areas, such as points of sale and service counters.

Employee issues — Add additional clock in/out stations. If possible, these should be spaced apart to reduce crowding in these areas.

Staggering schedules — Stagger workers’ arrival and departure times to avoid congregations of employees in parking areas, locker rooms and near time clocks. Stagger lunches as well, to avoid overcrowding in general areas where employees may often eat. If you have an area frequently used for lunches, make sure you enforce 6-feet spacing in that location too.

Keeping virus at bay — Actively encourage sick employees to stay home. Check temperatures of workers upon arrival — and consider checking customers’ temperatures too. If anybody is running a fever, they should not be allowed into the facility and should be asked to go home and call their doctor.

Want to know more?

OSHA has a fantastic COVID-19 resource page that outlines safety procedures that employers in a number of industries can implement to reduce the chance of transmission between workers, as well as between workers and customers. You can find it here.

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Coronavirus Could Trigger Multiple Insurance Policies

coronavirus mask

COVID-19 is forcing businesses to face a number of risks, liability and insurance implications.

Companies could seek coverage for a variety of claims stemming from the outbreak, including workers’ compensation, business interruption, liability and more.

And, now that it is a pandemic, the economic fallout may be expansive — hitting your company’s operations in the form of lower sales or supply chain disruptions.

Now is a good time to understand which of your insurance policies could come into play.

Workers’ compensation

Workers’ compensation policies generally extend insurance benefits to employees for injuries and illnesses “arising out of or in the course of employment.”

That wording makes it difficult for most workers to file a claim if they suspect that they got the coronavirus at work, presumably from another employee, customer or visitor to the workplace. But if an employer knows that the virus is in the workplace, coverage could apply.

Workers’ compensation could come into play in the following instances:

  • Health care personnel who work where there are patients being treated and tested for COVID-19 would have a strong claim if they contracted the virus.
  • Employees who travel overseas for business and contract the illness.
  • Employees who are exposed to the illness at work by an infected co-worker.
  • Employees who are assigned to work in a location with infected parties.

However, workers’ comp insurance would likely not cover employees who are working on assignments abroad for more than a short time.

Business interruption

One major fallout from the spread of COVID-19 is that it has cut into global supply chains, forcing manufacturers around the world to suspend production. This has been especially true for companies that rely on China for their parts and materials.

But now that the virus has exploded in a number of countries, the threat to supply chains will only increase. This has already started affecting companies in the United States. If your company’s operations are affected or stopped due to the virus, you may be wondering if the business interruption coverage in your property policy or business owner policy may payout.

Business interruption coverage replaces income that was lost due to a disaster, such as a fire on the premises of the company or one of its suppliers, or a hurricane that hinders a company from operating.

However, any hit to your income from coronavirus would not be physical damage, which is a prerequisite for this coverage. Viruses and disease are typically not an insured peril unless added by endorsement. In many cases, the policy may specifically exclude coverage for viruses and diseases.

There is potential coverage through communicable disease coverage under proprietary insurance carrier forms if the insured is closed by a “public health authority” order for closure, decontamination, etc. But it’s worth noting that these usually require the order to happen, so the insured cannot voluntarily decide to close and then claim coverage.

General liability

In terms of liability, a third party — customer, vendor or guest — could claim they were sickened on your property and sue your business for negligence for failing to provide a clean facility, which could trigger your commercial general liability policy.

Any company that deals with the public or customers, like a retailer, restaurant, hotel, daycare center or gym, would be at greatest risk for this type of action.

While the chances of them winning such a case would be small, you could still face legal bills, which your CGL policy would typically cover. If there is coverage, it would come under the policy’s “bodily injury” portion.

Some CGL policies exclude claims arising from a pandemic, virus or bacteria, so read your policy carefully. Many insurers also include broadly worded pollution exclusions that could preclude or limit coverage.

Business travel accident insurance

This insurance could cover employees who travel on business domestically or internationally, foreign employees of U.S.-based businesses and U.S. employees on offshore assignments. The insurance provides:

  • Traditional accidental death & dismemberment coverage.
  • Emergency evacuation, repatriation, and out-of-country medical benefits that cover costs for the treatment and transportation of sick or injured employees.
  • Optional coverage for unexpected medical expenses.
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Car Crashes a Leading Cause of High-severity Claims

safe driving

Traffic accidents continue to be one of the leading causes of high-severity workers’ comp claims, according to research.

The National Council on Compensation Insurance found in a study that the cost of workers’ comp claims for accidents involving motor vehicles was 250% more than the average for all workplace accidents.

The study also found large differences between the cost of claims involving large trucks and passenger cars, as well as a reduction in the number of accidents during economic recessions. Besides a threat to other drivers on the road, any injuries your employees suffer while on driving for you on the job will end up being paid for by your workers’ comp policy as well any time missed from work due to the injury.

The study found:

  • While the frequency of truck fatalities is now very similar to the frequency of passenger vehicle fatalities, the frequency of non-fatal injuries is higher for passenger vehicles.
  • Motor vehicle accidents are more likely to result in multiple claims, and claims costs are higher for claims from multiple-claim events.
  • Motor vehicle accident claims are more severe than the average workers’ compensation claim.
  • Vehicle accidents affect a wide range of occupations other than just truckers.
  • Neck injuries are among the top diagnoses.
  • The duration of motor vehicle accident workers’ comp claims is more than a third longer than the average claim.
  • There is a significant amount of subrogation in workers’ comp traffic accident claims, with such claims accounting for more than half of all claims with subrogation.
  • Motor vehicle claims are three times as likely to involve a claimant attorney compared with other claims.
  • Distracted driving continues to be a leading cause of accidents and close calls.

Safe-driving rules for your staff

Encourage your employees to drive safely and abide by the safety rules you establish.

A good set of rules, drawn up by OSHA and which should be in writing for your employees, is:

  • Wear a seat belt at all times – driver and passenger(s).
  • Be well-rested before driving.
  • Avoid taking medications that make you drowsy.
  • Set a realistic goal for the number of miles that you can drive safely each day.
  • Do not use a cell phone while driving, unless you are wearing a hands-free device. Do not send text messages.
  • Avoid distractions, such as adjusting the radio or other controls, eating or drinking.
  • Continually search the roadway to be alert to situations requiring quick action.
  • Stop about every two hours for a break. Get out of the vehicle to stretch, take a walk, and get refreshed.
  • Keep your cool in traffic!
  • Be patient and courteous to other drivers.
  • Do not take other drivers’ actions personally.
  • Reduce your stress by planning your route ahead of time (bring maps and directions), allowing plenty of travel time, and avoiding crowded roadways and busy driving times.
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New Experience Rating and Physical Audit Levels Set

workers' compensation, X mod, physical audit,

Starting in 2020, the threshold for California employers to be eligible for experience rating (X-Mod) has been reduced by order of the state insurance commissioner.

Commissioner Ricardo Lara in September approved the recommendations by the Workers’ Compensation Insurance Rating Bureau to lower thresholds for determining eligibility for experience rating and when a carrier needs to perform a physical audit of an employer’s payroll records.

The threshold for physical audits that takes effect for policies incepting on or after Jan. 1, 2020 will be $10,500 in annual premium, a drop from $13,000. This means that any employer with an annual workers’ comp premium of $10,500 or more will be subject to a physical audit at least once a year.

“Physical audit” is defined as an “audit of payroll, whether conducted at the policyholder’s location or at a remote site, that is based upon an auditor’s examination of the policyholder’s books of accounts and original payroll records (in either electronic or hard copy form), as necessary to determine and verify the exposure amounts by classification.”

Additionally, the threshold for experience rating or to have an X-Mod, has been reduced to $9,700 in annual premium from $10,000.

The eligibility rating threshold is the amount of payroll developed during the experience period in each classification multiplied by the expected loss rates for each class. If the total for all assigned classes is at or above the threshold, then the employer is eligible for an X-Mod.

Changes to dual-wage class codes

The insurance commissioner in September also approved the Rating Bureau’s recommendations for changes to a number of construction dual-wage class codes.

While most workers’ comp classes have one rate, in some classes the difference in claims costs between high- and lower-wage workers is so great that a dual-wage classification is needed. In those cases, the workers above the threshold rate are assigned one rate, while those below that threshold are assigned a higher rate.

This is usually because the higher-wage workers are generally more experienced and tend to suffer fewer workplace injuries compared to those below the threshold.

The new thresholds are for 14 construction classifications, and any workers above the threshold will have a lower rate applied.

CLASSIFICATIONS AFFECTED         

Masonry – 2020 threshold: $28 per hour (+$1 from 2019)
Heating/Plumbing/Refrigeration – 2020 threshold: $28 (+$2)
Automatic sprinkler installation – 2020 threshold: $29 (+$2)
Concrete/Cement work – 2020 threshold: $28 (+$3)
Carpentry – 2020 threshold: $35 (+$3)
Wallboard application – 2020 threshold: $36 (+$2)
Glaziers – 2020 threshold: $33 (+$1)
Painting/Waterproofing – 2020 threshold: $28 (+$2)
Plastering/Stucco work – 2020 threshold: $32 (+$3)
Roofing – 2020 threshold: $27 (+$2)
Steel framing – 2020 threshold: $35 (+$3)
Excavation/Grading/Land leveling – 2020 threshold: $34 (+$3)
Sewer construction – 2020 threshold: $34 (+$3)
Water/Gas main construction – 2020 threshold: $34 (+$3)

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Workers’ Comp Audit Mistakes: What to Look For

calculate

No company owner wants to undergo a workers’ compensation audit, but they are a fact of life if you run a business and have employees.

Unfortunately, many audits don’t go smoothly and sometimes your insurer may make mistakes. Missouri-based Workers’ Compensation Consultants, which helps employers through the workers’ comp audit process, recently listed the 10 most common audit mistakes that insurance companies make.

The list highlights a common problem and how you can detect the mistakes to avoid being stuck with a massive audit bill. Insurance companies allow you to review the audit with your broker. If you notice that you have received an audit bill that is obviously overstated, you should contact us.

Here are the things to look for when reviewing an audit by your insurance company:

Wrong class code – Misapplication of job classifications occurs in many workers’ comp audits. With hundreds of job classes to choose from, mistakes can happen. Talk to us and review your old policies to see if any of your class codes have changed.

X-Mod is changed – After your insurer finishes the audit, it will use the information to calculate your premium. When that happens, it has to include your X-Mod to get the right rate. But sometimes the insurer may use an incorrect X-Mod. Check carefully.

Subcontractors are counted – Sometimes insurers will include subcontractors as employees, which results in a new audit bill to account for the additional “employees.” But if they are genuine subcontractors, they should not be counted. Often, uninsured contractors will be included as employees. Make sure to use insured contractors only.

Disappearing credits – Most policies will have some sort of premium credits or other modifiers. Sometimes during audits, the insurer will remove them when recalculating the premium they think you owe. Watch out for missing credits and other modifiers if you get an audit bill, like:

  • Premium discount
  • Schedule credits
  • Deductible credits
  • State-specific credits

 

Audit worksheets missing – If the auditor fails to provide you with audit worksheets, which are used do compile your payroll and other audit information, you should ask to check their work. They will provide you with the information you need to carry out such a check.

Your rates changed – The rates you are charged at the beginning of your policy period must remain the same for the entire policy period. If your base rates have changed, the insurer may have made a mistake. 

Separation of payroll – Depending on your industry, you may or may not be able to split your employees’ payroll between job classifications (like cabinet installers and sheetrock hangers). This is a pinch point when errors can occur. If the auditor says you are not allowed to split job classifications even though you have in the past, your audit may be in error.

Unexpected large premium due – If you get a significant bill for your insurance company after your audit, the auditor may have made mistakes, particularly if you know that your employment has remained relatively stable and you’ve had no significant claims, if any. If it seems out of whack, call us.

Payroll data doesn’t match – If there is a discrepancy between your payroll data and what you see on the audit, a mistake may have been made. Try to match the payroll on the audit with that generated from your accountant. If the insurer made a mistake, you could end up paying for phantom payroll numbers.

No physical audit – There are three types of audits:

  • Mail audit
  • Phone audit, and
  • Physical audit

 

The mail and phone audits are prone to errors, since neither you nor your staff likely have any experience in premium auditing. If you have a big bill after a mail or phone audit, mistakes could have been made.