PCRB Gets Tough on Audits Effective 01/01/17

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Posted in: Articles Published by Horst Team, Commercial Insurance, Compliance, Workers' Compensation

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Author – G. David Ament, CIC

Posted – 01/04/2017

Generally, an auditable insurance policy, such as Workers’ Compensation or General Liability, includes a provision in the contract wording that requires you to cooperate with the insurer as they conduct the final policy audit.  Policy audits allow the insurance company to collect premium on the actual exposure (sales, payroll, etc.) that you created vs. the estimate exposure the policy was originally based on.

Until now, there were few, if any, penalties for not cooperating with the insurer to complete an audit.  For Pennsylvania Workers’ Compensation policyholders, however, that changed on March 9, 2016.  On that date, the Pennsylvania Compensation Rating Bureau (PCRB) approved the establishment of an “Audit Noncompliance Charge” (ANC). This change will enable an insurance company to apply an ANC to the policy of an employer that does not permit the insurance company to examine and audit the records of the employer.

This change is outlined by a new endorsement, WC 37 04 01, which will be attached to all new and renewal policies effective January 1, 2017. I have included a copy of the endorsement.

If an employer does not allow an insurer to examine and audit all of their records that relate to the policy, and/or do not provide information as requested, the insurance company may apply an Audit Noncompliance Charge (ANC). That charge is TWO TIMES the estimated annual premium!  That will surely get most employers’ attention. The insurer must make two attempts to complete the audit. At each attempt, the insurance company will notify the employer the amount of the ANC that would be applied if the employer refuses to comply with the audit. These ANC conditions apply to mail/email, telephone, computer and physical audits.

If the employer allows the insurer to complete the audit after they have applied an ANC, the charge will be removed and premium will be adjusted accordingly.

It is important that all policyholders understand whether or not their insurance policies are auditable.  If they are, steps should be taken early to help you prepare for the audit throughout the year rather than suddenly as the policy expires.  Simple measures such as classifying your employees according to their workers’ compensation classification code, and stronger tracking of things like overtime and interchange of construction labor, can make audit preparation for the policyholder simple and painless.  Your insurance agent can advise you on these steps.

Insurance policy audits should never produce a surprise, let alone a financial penalty!