Stress-Free Premium Audit

The right workers’ comp policy makes all the difference, which is why employers spend time selecting the right coverage for their business. A report by The National Academy of Social Insurance (NASI) found that workers’ comp programs cover more than 138 million workers – 86% of all jobs. This financial safety net has helped thousands injured workers after a workplace injury and return to work process, but how can employers ensure their policy aligns with the responsibilities and risks of their current workforce?

That’s where premium audits come in – and although some employers view them as a disruption, the process is a lot more straightforward than you think. To help your next premium audit run smoothly, let’s go over some of the simple steps to help you prepare.

What is a Premium Audit?

A workers’ comp premium audit is a verification process that makes sure your company is charged the correct premium. Because every employer has different working conditions, a premium audit considers the unique workplace characteristics and payroll records of your business to determine whether your policy premium is accurate. Audits are conducted at the end of each policy period or when your policy expires.
Insurance carriers use several methods to gather the information they need. According to The National Council on Compensation Insurance (NCCI), the 3 most common premium audit types are:

1. Physical: An insurance representative schedules an on-site visit.
2. Mail: Employers are mailed an audit form to be completed and returned along with any requested supporting documents.
3. Phone: Auditors contact the employer by phone to perform a remote premium audit.

Why Premium Audits are Important

Insurance premiums are estimated at the beginning of a company’s policy period and are based on payroll information and employee classifications – the types of work that your employees carry out. Since business practices tend to change over time, the premium auditing process helps ensure employers are paying a fair and accurate premium for their coverage. Additionally, these audits make sure your business and your employees are correctly identified according to state classification guidelines. Every position has its own specific classification code, though coding guidelines may vary among states.

Benefits of Annual Premium Audits:

• Policy Compliance: Most workers’ comp insurers include premium audits in their policy contracts, meaning businesses are required to complete them. Annual audits may be required as part of a state’s insurance laws. Most states use the standardized manuals, formulas and classification systems created by NCCI, though some calculate policy premiums using a separate method.
• Fair Premiums: The overall goal of annual premium audits is to verify whether you’ve been correctly billed for your insurance policy. If your payroll or staffing fluctuated over the policy period, you may end up paying less than originally estimated. NASI recently reported on the continued decline of workers’ compensation costs to employers, which fell for the third consecutive year at the national level during 2016.
• Health and Safety: The most important benefit of premium audits is that they make certain all of your employees have access to workers’ comp insurance in the case of an accident or injury. The auditing process offers employers an opportunity to better understand their business operations and the needs of their employees.

How to Prepare for a Premium Audit

Every year, millions of US employers are asked to provide documentation as part of their annual workers’ comp premium audit. There are a number of tasks you can complete ahead of the scheduled review period to make the process a bit more manageable. If you’re preparing for an upcoming premium audit, consider these 3 helpful tips:

1. 1. Select a primary point of contact who understands the full scope of what your company does and how it’s structured. Having a knowledgeable point person for these audits make the process more efficient, as that person will know what records have been provided in the past. Assigning the same employee each year also helps establish a working relationship with your carrier.
   2. Gather the necessary documents ahead of time, rather than waiting for the auditor to request them during the auditing process. Locating specific documentation may take some time so it’s important to collect payroll, employment and tax records before your audit. Some industries have distinct requirements, so be sure to ask your insurance representative for a complete list of what the auditor will need. Also, remember to save your documents electronically for easy reference year after year.
   3. Review any publicly available information about your company, including press releases and sales data listed on your website. Auditors will largely stick to the documentation you provide, but some may look to your website for information they’re unable to get from your contact person.

If you’re unsure about why certain documents are required, don’t hesitate to ask for an explanation. And remember, learning more about the premium auditing process makes future audits much easier and more approachable. Some commonly requested documents include:

1. 1. • Payroll records: Salaries, wages, overtime pay, unemployment reports, etc.
      • Employment records: Number of employees, total hours worked, job responsibilities, etc.
      • Sales records: Subcontractor payments, materials payments, general ledgers, etc.

Quick Tips for a Smooth Premium Audit:

• View this list of commonly requested audit records
• Be available during the audit to ask questions and review the auditor’s findings (payroll totals, subcontractor costs, overtime, employee classifications, credit, etc.) before they leave your business.
• Accurate and organized record-keeping helps reduce your premium.

If you are a current policyholder with FFVA Mutual and have questions related to your premium audit, contact audit@ffvamutual.com