Premium Audit Bill and Policy Renewal Conundrum

Monday, January 14, 2013 | 0

"Our Workers Comp premium audit bill surprisingly increased our premium by 26%. We do not necessarily agree with the audit and want to change insurance carriers. Due to the timing of the audit, we are already two months into our next policy. Can we dispute the audit and cancel our renewal policy?"

We receive this question often. There seems to be two issues here: one of the premium audit dispute, and secondly, canceling a policy midterm. Both could turn out to be a very expensive proposition if not done properly.

This blog contains numerous posts on premium audit disputes. There are time limits on disputing your premium audit bill. Your company has to be very careful in just disputing a premium audit bill because it looks large. Reviewing the bill and audit may point out a reasonable explanation for the increase.  

If you review the bill and associated premium audit and still feel there are overcharges, you can dispute the bill. It is a very wise move to have a basis for your dispute. Your company may even owe a larger bill if the dispute is not done properly. 

The second concern is one that has to be handled delicately. Your agent may have already explained to you there are short rate penalties that can be substantial. An assessment of the short rate penalty revolves around a complicated formula for computing the carrier's fee.  

If your company is already six months into your new policy, the penalty can be very substantial. If your company is only two months into a policy, the cost may not be that high to switch. 

Searching for a new policy takes time. The new carrier will know that you had canceled out before policy expiration. The search for a new WC policy may take a few weeks if not months. 

There is an inherent delay in receiving the premium audit bill for the prior policy while the next year's policy is being renewed. The premium audit process cannot finish before your next renewal as the carrier needs to have a complete year of payroll and documents. The normal WC insurance cycle does not provide for an audit 11 months into a policy.

If you are not a fan of the premium audit and policy renewal process, there are many alternatives such as pay-go or PEOs. These two options have basically no audits and/or you pay for the WC coverage every payroll period. Both of those options have been growing in popularity over the last few years. There is a caveat that these two types of WC coverage must be placed properly. If not, your company may end up paying much more than for a regular WC policy.

James J. Moore is owner of J&L Risk Management Consultants in Raleigh, N.C. This column was reprinted with his permission from his Cut Comp Costs blog.