Workers Comp Audit SNAFU in New Jersey

 Let me share a little detail from a new case of ours, involving Workers Comp audits for policies in the New Jersey Assigned Risk Plan. This detail illustrates the kind of extreme, one-sided thinkiing that all-too-often we see in Workers Comp audits by insurance companies.

In this case, the insurer has retroactively moved all payroll for five past years into the very-expensive roofing classification. The reason, per the audit notes: out of $454,0,000 in payroll, there was a single $800 check that was labelled as being for "roofing labor".

That was it, that was the basis for all payroll being retroactively moved to a classification with a rate double the rate originally used for this client. Even though it's fairly obvious that most work done by this policyholder properly belonged in the cheaper class. But because insurers know that the obscure manual rules that govern Workers Comp policies, rules not spelled out anywhere in the actual policies themselves, can be retroactively interpreted to allow such behavior, insurers often pull this kind of "Shock Audit" sleight-of-hand. Years after the policies have ended.

So policyholders who get hit like this think their Workers Comp costs will be one thing, only to be informed years later that the insurance company is insisting the actual cost is twice what the policyholder was originally led to think.

And when the policyholder doesn't pay these revised bills, the insurer typically files suit. And that's when someone like me becomes necessary. Because insurance companies routinely produce affidavits and testimony from their own employees that all these premiums are properly owed for the policies.

And since most people who understand the arcane and obscure rules that govern Workers Comp premiums work for insurance companies, disputing those premium charges requires someone who also knows those arcane and obscure rules. Someone who is not employed by the very same insurance company seeking those substantially higher premium charges.

It reminds me of something I used to tell folks. Would you let the IRS figure your tax bill, without having your own expert independently review those calculations? 

When large sums of money have been calculated and sought based on complex and technical rules, rules not generally well understood, I think it makes sense to have an independent expert review those calculations. And that's where I and my team at Advanced Insurance Management come in. I've been doing this kind of independent review of Workers Comp insurance audits and premiums since the early 1980s, and I've found that self-serving errors of judgment by insurers are alarmingly common.

I've worked with employers large and small, all across these United States, and the frequency of these self-serving errors of judgment regarding Workers Comp audits and premium charges has consistently and persistently been shockingly high.

What was that Russian proverb Ronald Reagan once cited? Trust, but verify.

Busy, busy, busy

 Keeping busy these days, which is always a good thing. Flying out to California next week to testify at another trial out there over Workers Comp insurance. But first I have to complete a report on a California criminal case over Workers Comp premiums, have a Zoom with insurance company lawyers over a different Workers Comp dispute, talk with Georgia lawyers over a mediation over Workers Comp premiums, and review documents for a New Jersey case over disputed Workers Comp premiums.

I remember, when I started my consulting practice back in 1987, I had to spend time each day cold calling prospects. Fortunately, I was pretty good at that aspect of the business. Nowadays, it’s much more difficult to cold call, I think. I don’t do it myself but I help our dedicated people who still do it. But for a lot of my work, when people need me, they find me. 

And there seem to be a lot of people who need me these 

A Shock Audit from South Carolina

 Shock audits for Workers Comp insurance happen all over the U.S. I know, because I get calls and emails almost every day from some small business, somewhere in the United States, that's been clobbered with one of these Shock Audits.

This South Carolina small flood restoration business bought a Workers Comp policy for around $1,000.00. Now they have an audit bill for $77,000.00.

This is for a policy that didn't even last a year. The insurance company cancelled them after eight months when the policyholder dared question a change to the policy that suddenly caused a $28,000 bill for additional premium.

Fortunately, my initial review finds that an awful lot of that audit bill can be removed, once all the various mistakes the insurer made are corrected. And there are multiple mistakes, mainly over classifications but also about independent contractors being improperly included.

The insurance company did an audit for this policy--sort of. Judging from the results, it was an audit in name only. No actual effort appears to have been expended to determine the actual proper classifications and payrolls--the insurer's people just quickly and conveniently applied an extreme, worst-case scenario to every potential question, billed that out, and moved on to the next victim--err, policyholder.

But these errors are very fixable. And they will be.

As I often say, in a perfect world, I should have to be doing something else for a living.

We do not live in a perfect world, alas.

Interesting Deposition Today

 Had another deposition taken today in another California litigation, and opposing counsel asked a question that I hadn’t anticipated. He asked how a Chicago based expert would know anything about California Workers Comp insurance premiums.

And I had to smile to myself, because California has become one of two hot spots for my work in recent years, (the other is Georgia) so much so that I don’t think much about the geographic distance nowadays.

In this modern age, I was having my deposition taken via Zoom, for example. And internet and inexpensive phone service have rendered what once might have been significant geographic barriers into near nonexistence.

Sure, when I started my consulting practice back in 1987, my clients were largely local. But that was a different age, a different world . 

And it certainly is true that California has distinctly unique aspects to Workers Comp insurance premium rules.  But since the advent of the internet, I’ve had lots of California clients, and so lots of experience with the unique elements of Workers Compensation insurance in the Golden State.

Like I said, California has become a hotspot of demand for our particular consulting services, both for civil cases and criminal cases involving Workers Compensation insurance premiums and audits. I’ll be traveling there in two weeks to offer testimony at a trial there, and I’m scheduled to be back there in early February to testify at another trial.

Back in 1971, the Ides of March sang about LA being light years from Chicago, but nowadays, not so much for this particular son of the South 

Today's Shock Audit Phone Call...

 ...comes from a small biz in South Carolina. They bought a Workers Comp policy for $3,000. Now, after it's ended, they have a bill for $76,000. Based on our initial conversation, it looks pretty likely we can significantly reduce this bill.

Watson, the game is afoot!

I know, I know. Corny. But I love saying that when a new case comes in.

Today’s Shock Audit Email

 It’s frustrating when a small business reaches out to us with one of these Workers Compensation Shock Aufits, because they’re so common and so preventable if only a better job was done by the insurance system at various stages of the life cycle of a Workers Compensation policy.

This one involves a small start up package delivery company. A little over a year ago this company bought a Workers Compensation insurance policy for $1500.00.

Now, they have an audit bill for over $400,000 and it’s in collections.

And they don’t know what to do.

Fortunately, they found us. This is what we specialize in. And we believe we can substantially reduce this bill. But can the bill be reduced substantially enough for this business to avoid financial obliteration?

That’s the question we’re now exploring with this client.

One additional complicating factor: the business owner isn’t very fluent in English. But we’re working around that, thanks to a family member of the client.

But this case illustrates the dysfunctional way the Workers Compensation insurance system sometimes functions as a financial weapon of mass destruction for small businesses, particularly new businesses.

I mean, what other major industry could sell a product for $1500 and, a year later, send a retroactive bill for $400,000? No other legal business, I suspect. 

The insurance agent in this case? An online agency owned by an insurance company. All done in a perfectly legal manner, following the somewhat loose regulations that govern these things.

Now some collection attorney is sending out perfectly legal collection letters to these folks, demanding $400,000 with a straight face. And he’ll file a perfectly legal lawsuit if that bill isn’t paid and get a perfectly legal judgment and the company will cease to exist.

Except we can knock that bill down by, we believe, hundreds of thousands of dollars.

And maybe we can save this little business.

How I Help Insurance Agents When Workers Comp Audits Go Sideways

 I've spent more than half my life helping business policyholders reduce Workers Comp audits by finding and correcting technical errors by insurance companies. Just this week, a small Idaho contractor got a $28,000 refund from his last Workers Comp audit, because I got the classifiction code used retroactively corrected.

$28,000 may not seem like a huge sum to many companies, for this small biz it was a big deal.

Anyway. my point is that it's not just the policyholder I help. Often, it's the insurance agent who sold that Workers Comp policy, because policyholders often unfairly hold the agent responsible when they get what we call a "Shock Audit" for Workers Comp.

That's why we often get brought in by those insurance agents, to help their clients with contentious audits.

I'm a specialized consultant on Workers Comp audits, classifications, experience mods, and related technical issues that impact Workers Comp premiums. But I don't sell insurance.

That means an insurance agent doesn't have to worry I'll try to poach his account, if he brings me in to help. I'm not an insurance producer and I'm not affiliated with any insurance agency or insurance company.

And as part of the process, I can explain why insurance agents aren't to blame when an insurance company ends up developing a large amount of Additional Premium on an audit. I've been an agent, I know just how little authority and influence insurance companies give agents over premium audits.

But policyholders often don't understand that. They only know that the insurance company that the agent hooked them up with is clobbering them with a serious, unexpected bill that feels unfair and unwarranted. And they believe that the insurance agent is in on some kind of nefarious scheme to rip them off by making the back end of the insurance cost a lot more than initially expected.

Policyholders often wrongly think that the insurance agent makes a windfall with these Shock Audits (which isn't true but is a common and poisonous misconception that can really damage the relationship between the insurance producer and the client.)

When an insurance agent introduces me to this angry and frustrated client, a couple of positive things happen.

One, it can enhance the professional standing of the agent with the client. Now, instead of being part of the problem, the agent is part of the solution.

Secondly, the agent doesn't have to get in an adversarial position with an insurer that may be an important market for future sales. Insurance companies already are familiar with my work and they understand that disputing Workers Comp audits is what I do for a living. It shields the agent from negative impacts of an audit dispute because, as far as the insurance company knows, the agent had nothing to do with bringing me into the picture.

After all, we get calls and emails almost every day from frustrated policyholders about one of these Shock Audits for Workers Compensation insurance. So most of our audit disputes originate directly with the policyholder contacting us.

And as part of my work, I can explain the inner workings of premium audits and why insurance agents really don't have much, if any, influence over how a premium auditor determines the audited premium. But the fact that the agent brought me in to help the client can go a long way to smoothing down ruffled feathers.

And if the agent is seen as assisting in some way with my efforts, by helping gather documents and data, the beneficial impact of my involvement can become even more significant for the long term relationship between the agent and the insured.

So to all the insurance producer folks out there, I would suggest that they view me as a resource that can help salvage a difficult bump in the road with a client. It can be a secret weapon that a competitor lacks, turning a negative situation with a customer into a positive one.