This subject really hits home with many employers for several reasons. I would venture to assume is hardly an employer out there who has not found the audit process to be annoying at best and downright terrible at worst. From unexplained premium increases to agent complacency, the reasons for hating audits really runs the gamut.
Any time that an insurance agent’s response to an employer complaining about their audit results is “well, who completed the audit forms?”, I get really irritated! Why? It is a copout and should be the only indicator that an employer needs to find a new agent THAT DAY regardless of the relationship with the agent or agency.
Throughout this series on worker’s compensation and Conquering Zero, I’ve said many times that instead of tweaking their current processes, employers need to get a different box and start over with a process that works. Insurance audits are no exception. Typically, the players involved in an insurance audit are:
- Employer
- CPA/Bookkeeper/Accountant
- Auditor
- Insurance Carrier
The typical audit process is left to operate without any checks and balances. Let’s look at each of these individually to understand how easily errors can happen.
The employer doesn’t understand how the process works because it has never been explained in a way that they can understand how to best maximize their ability to keep their audit results from being misconstrued or manipulated. If they complete the audit themselves with no outside assistance, there is little chance for an error-free audit.
If the employer hands the audit off to their outside CPA, bookkeeper or accountant, and that person or firm does not have a thorough understanding of the employer’s business operations and the structure of their insurance program, the information provided for the audit, even if it is accurate, is often incomplete.
The auditor can create all kinds of problems, especially if they are a third-party audit firm retained by the insurance carrier and not an employee of the carrier. However, as unfortunate as this may be, it is a fact that many of these firms are looking for ways to find additional premium for the carriers to justify their contracts. While that is not true of all third-party providers, my experience over the past 30 years is proof that a third-party auditor who does it right is the exception rather than the rule.
While an insurance carrier’s own audit department is better than a third-party, even when the process works the way it should, things can still go sideways once the data reaches the insurance carrier. A carrier’s audit processors can make or break any audit, regardless of how well the process has gone up to that point.
The one player who is missing in the typical audit process is the agent. That is the reason we are so active in assisting our clients in this critical process. Even when everything else goes right, a simple data entry mistake can be disastrous for the employer. Why? Because we are all human and make mistakes. We will try to “automate” the process as much as possible to mitigate the possibilities for errors. How do we do that? By knowing your business well enough to put processes in place to make your audit go smoothly from beginning to end and reviewing the results to make sure nothing was missed by any of the other players involved in the process.
Ever since we started providing audit assistance to our clients, we have helped them by discovering and correcting well over $1,000,000 in errors. One of my favorite examples involved a contractor who had only been a client for a little over 2 years when they received an audit bill for $27,100. Because we had been involved in the process, we knew that wasn’t right but didn’t know what was wrong. Since they had a similar experience with their prior agent and nothing was done to discover or correct the error, it was critical for us to follow-through with our performance promise.
We started by asking for a copy of the insurance auditor’s worksheets to compare them against the information provided by the employer and verify nothing was changed, added or omitted by the auditor. There was no error at this step. We then requested a copy of the insurance carrier audit department’s summary. That is where we found the error. The data entry person had added an extra zero, inadvertently, when transferring the numbers from the auditor’s worksheets into the carrier’s database.
Once the error was corrected, instead of a bill for additional premium of $27,100, the client received a refund of $14,733, a net savings of $41,833! To top it off, that was just the Worker’s Compensation portion. There was another correction on the General Liability with a net savings of $21,645, bringing the total savings to $63,478! As a commercial framing contractor, they would have had to frame an additional 140,000 square feet to net the savings we were able to get them just because we monitored the process for them. In this case, a simple human error could have had disastrous results for the client.
Once again, there are many moving parts that must be properly managed to generate an error-free audit. The premium audit section of the Conquering Zero process contains everything an employer needs to understand and implement effective procedures to guarantee zero audit errors.
About the Author:
Ray Gage, Director of WalkerHughes Allen County Office, is a Master Work Comp Advisor who's passion and life's work is to help sophisticated, process-oriented businesses create safe, healthy, productive workplaces, and as a result, more profitable firms. For more information on Automate Safety along with the other tools offered by WalkerHughes to assist in your quest for Zero Injuries, contact Ray at r.gage@walkerhughes.com or by phone at 260-627-3641 with any questions or inquiries.
