One unhappy trend we’ve been seeing lately is more and more employers being hit with audit noncompliance penalties from their workers’ compensation carriers. These penalties can be very significant, up to twice the annual premium, so let’s take a look at how to avoid them.
Like any insurance policy, a workers’ compensation policy is a contract that binds both parties to certain actions. Among other things, the language in the contract requires that the policyholder make certain information available to the insurer for a premium audit. This audit is the primary means of determining the premium charged by the insurer, so complete and timely information is essential.
Not every insurer audits every client every year, but the policy language reserves the insurer’s right to do so, and carriers take that right very seriously.
What can cause a noncompliance penalty? A number of things, including the failure to respond to audit requests or keep those audit appointments, but most often noncompliance comes down to the inability (or unwillingness) to provide the information stipulated in the policy.
So how do you properly prepare for an audit? Check with your individual carrier to see exactly what documents they require but be ready to provide the basics, such as payroll records, employee records, cash disbursements, and all certificates of insurance for your sub-contractors. Also, be prepared to offer at least limited access to your accounting and bookkeeping programs.
Don’t run the risk of a stiff penalty, or even worse, a cancellation or non-renewal. Understand your responsibilities and be prepared for that audit.
Questions about workers’ compensation insurance and audit compliance? Contact Consolidated Insurance.