The owner of a contracting business sensed the business was about to incur a substantial additional premium charge. When neither the insurance broker nor the insurer were able to answer the owner's questions, the business owner called AuditRate.

It all started with the insurer asking the regulator to survey the business for advice on which class codes the insurer should apply to calculate premiums. The regulator's survey produced four possible class code scenarios. Neither the insurer nor the broker were able to explain when, where, and why those codes would be applied. AuditRate answered those questions, which ultimately saved our Client $46,000.

While we were helping our Client, we also found that the contractor had never been advised that they were an eligible applicant for the Illinois Contracting Classification Premium Adjustment Program. We filed the required documentation, to secure the program credit, which refunded $30,000.

It is our displeasure to tell you that a bad situation is getting worse. We are hearing this story, over and over, from our Clients - “the auditor didn’t know what he was doing.” Many of our clients have learned what to expect from the audit by working with the auditor year after year. They have become accustomed to the ins and outs of the process. And, they recognize when things are not being done competently. This problem is very serious.

Why is this happening? The only logical conclusion is --- cost cutting. Premium audit has become a lower level position that acts as a stepping-stone to bigger and better positions. Since field auditors are not staying at this position very long, they don’t achieve the level of experience needed to effectively implement the Rules in the Manuals. And since the auditors are not staying auditors, the carriers are not investing in the necessary training to perform audits correctly and competently.

The end result of this cost cutting --- premium overcharges. And, don’t think that this is limited to your workers’ comp insurance. Most of the time the General Liability audit is performed at the same time…By the same auditor.

When a business owner asked their CPA firm about a $34,000 additional premium charge, the CPA suggested they call AuditRate. The business owner didn't know whether the insurer had overcharged them or not, they just wanted an assurance that paying the $34,000 additional premium charge was correct. AuditRate's re-audit of the payroll records disclosed that the insurer's payroll auditor (over)

(CPA's Advice continued from previous) had failed to ask for, and use the proper payroll records when completing their audits. The payroll system employed by the business, was "paperless," which isn't that unusual. When insurers' encounter that system, the insurer payroll auditor advises the business what information they need to conduct their audit, and the business produces that information, using the report writing capabilities of the payroll system. Unfortunately, the insurance auditor failed to identify all the aspects of "payroll", which for insurance purposes, isn't included as such.

Instead of the business owing a $34,000 additional premium charge, we found that the business was actually entitled to a $19,000 refund. AuditRate then set out to re-audit the payrolls applicable on the prior policy periods, and found similar errors.

After all was said and done, AuditRate found that the business had been overcharged by $101,000 over four policy periods. AuditRate met with the insurer's auditor to identify why the insurers audits were incorrect. The insurer agreed with AuditRate's findings and refunded the overcharges.

During a fact-finding meeting with a new Client, we learned that the owner of this particular business was also the majority owner of other entities. When we advised them that their workers’ comp experience rating factors were incorrect... because there were separate factors produced for each of the commonly owned businesses... the owner asked the question; “Does this matter? They are separate, unrelated companies.” The answer to that question is, yes it does matter, because

depending on the circumstances, a business owner will either be overcharged, or undercharged as a direct result of not complying with the rules.

The rules state that the payroll and loss experience of all commonly owned entities must be combined into one experience rating factor. We immediately performed calculations showing that if this aspect of their insurance had been handled correctly, their current costs would be reduced. Our calculations also showed they were overcharged on their prior policies.

AuditRate is a premium sleuth and uncovers and recovers insurance premium overcharges.We search for, and find, recoverable premium overcharges for 40% of our Clients. Businesses are frequently overcharged by their insurance company (workers' compensation, liability, etc.)... and do not realize it.

For 39 years we have been reporting actual situations like those found in this newsletter. Policy overcharges are an on-going business problem that won't go away. Buying an insurance policy is not like buying a finished product. It's a work in process, with countless pitfalls all along its route. AuditRate's Clients didn't realize they were overcharged until we identified where, when, and how they were overcharged.