Understanding the Final Audit Process for Workers' Comp

Показать описание

Watch CID's previously recorded webinar to understand how an audit can impact premium, learn what documents your insured will be required to prepare, and find out what to expect during the process!

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.

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 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.

What Information will be Required?

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

Physical Versus Voluntary Audit

Physical Audit: Performed at your place of business

- Performed within 60 days after the expiration of your Workers Compensation policy
- Scheduled per the Auditors preference; Notice given of Audit date and time
- Required Records will be indicated by Auditor
- Audit must be completed within a 30 days time period or is marked as delinquent by Insurance Company

Voluntary Audit: Form is sent to insured within 30 days of the expiration of the Workers Compensation Policy

- Form is sent by mail
- The insured completes the form and returns to the Insurance Company
- The Form displays your Class Codes, as listed on your Policy, and requests the actual payroll for each class code during the policy year
- Contact the Insurance Company if anything is not clear on the form

Business Operation Changes that can Affect an Audit:

Did they expand?
Hire new employees?
Performing new duties?
Subcontractor exposures?

Entity Structure Changes Impact the Audit

Did the company change their entity structure?
Have there been any changes to the ownership structure?
Did the company change ownership? Was it sold?

New exclusion forms will be required for any “yes” answer.
Not all ownership can be excluded.
The required forms and rules are different for each entity type.

How Noncompliance Affects 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.

When to Dispute the Audit:

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.

Best Practice Approach for Final Audits:

Understand that audits can be frustrating for the insured.

Encourage insured to respond to audits sooner than later.

Help your insured understand the penalties involved with non-compliance

Keep copies of records provided for the audit.

--

Learn More About CID:

CID Insurance Programs is an E&S Wholesaler specializing in commercial insurance products designed for independent and captive insurance brokers’ business client’s needs.

Our wholesale business insurance products encompass a broad range of preferred to manageable hard-to-place risks. CID Insurance has developed strong relationships with both admitted and non-admitted markets. Our commitment is to make the quote and bind process fast and easy for our retail insurance brokers.