Physical Premium Audits -- COVID 19 Removed The Physical Part
Will Today's Hybrid Audits Ever Return to Physical Premium Audits?
First – let us define the three types of audits in this article –
Wikimedia – NetanelBacharSchwartz
Hybrid -the records are usually reviewed offsite -technology has allowed much easier access to employer records without having a “physical presence” at the employers' offices. If the employer hires its own premium audit consultant, the audit is usually hybrid.
Self-reporting audit– the employer submits their payroll and classification codes to their insurance carrier. Spreadsheets are critical to the success of self-reporting audits. This type of audit usually occurs with very small companies.
Physical – the premium auditor physically visits the employer's offices to review the records onsite. Many states require physical premium audits if the premium or payroll amount reaches a minimum figure. The auditor may request to take some of the records offsite – myopinion on records removal can be found here.
COVID-19 Lockdowns Changed Everything
The first that I heard of employers not allowing any type of outside contact began in March and has not changed that much since then on who comes and goes at employers.
Hybrid audits became very necessary in states such as California andNew Jersey. The Departments of Insurance required the carriers to process premium refunds due to furloughed employees and reclassified employees along with other requirements such as 90-day grace periods for premium payment.
The Classification Code 8871 became very popular almost overnight. The Telecommuter Class Code was extremely important for employees working from home on their computers.
Three carriers and two agencies contacted J&L to obtain our opinion on how to process refunds to employers even though physical premium audits were placed on hold. The answer was modified hybrid audits.
Hybrid premium audits came to the forefront over the last six months.
My Predicted Change to Physical Premium Audits
In my opinion, physical premium audits will not be eliminated entirely and replaced with hybrid audits. Premium audit disputeswould spike over “the auditor does not know what we do here at our plant” or something similar.
My predicted change is the Departments of Insurance and Rating Bureaus (NCCI, WCIRB, etc.) will increase the minimum requirements for physical premium audits to a higher level.
Premium audit companies and insurance carrier premium audit departments have started using algorithms and analytics to choose the type of audit – from the webinar page –
“The webinar will focus on how insurance carriers are integrating advanced analytics and machine learning to their premium audit process to help them better select the type of audit to be conducted. In addition to providing improved ROI and enhanced APRP results carriers are seeing the benefit of proactive risk mapping.
Objective: Understand how analytics works and how carriers can integrate modeling into their premium audit process”.
Physical premium audits will never be eliminated totally. How premium audits are conducted post-COVID-19 will change in early 2021 and 2022.
This blog post is provided by James Moore, AIC, MBA, ChFC, ARM, and is republished with permission from J&L Risk Management Consultants. Visit the full website at www.cutcompcosts.com.
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