When Are Rules Not Really Rules, Georgia Edition

 I do a lot of work in Georgia, for some reason. And I’ve been pretty impressed with the local folks there at the Department of Insurance and NCCI. But some recent cases there have revealed an interesting answer to the question posed in the heading of this post.

When are rules not really rules? When there is no penalty for ignoring them.

So let me explain what I’ve observed in some recent Georgia cases that illustrate this.

I’ve written a lot about the problems of Shock Audits in Workers Compensation insurance. That’s where some employer, typically a small contractor, gets sold a cheap policy. With premium of maybe $1500 or so. And then after the policy ends, gets a bill for $150,000.00. For his $1500 policy.

And when he can’t pay that bill, the small contractor gets sued by that insurer because the insurer thinks the small contractor ripped them off.

Now, the insidious part is that, because the small contractor doesn’t know what his Workers Compensation really costs, he doesn’t price his services properly—he can’t build in a realistic cost for Workers Comp because he hasn’t been given a realistic estimate of that cost.

So the small contractor digs a nice big hole for himself, project by project. And every job he thinks is making a bit of profit for him is actually losing him money.

Now in Georgia, the Assigned Risk Plan (where most small contractors end up) has rules in place that should prevent this hole digging.

Except there is no penalty when the insurer just ignores those rules. And that’s when rules aren’t really rules.

In the Georgia Assigned Risk Plan, insurers are required to verify classifications and payrolls in the early months of a policy. And for most construction contractors, they’re also required to perform a separate Preliminary Physical Audit in the middle of the policy. And when done, these required quality control steps would alert our small contractor to the actual cost of the insurance, before that hole gets overwhelmingly deep.

But what happens if an insurer just ignores those requirements?

Nothing.

I’ve observed this in multiple recent cases.

And so the Shock Audits keep devastating small contractors.

Fortunately, I can often find and correct enough technical errors in these Shock Audits to at least knock the audit bills down to something that’s merely painful and not apocalyptic.

But in my view, it really shouldn’t be this way. And making these rules have some genuine penalties involved in cases of insurers laughing them off would be a godsend for these small entrepreneurs.

But what do I know?