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?

Wait, You Do What, Exactly?

 Mainly, I catch insurance companies overcharging employers on Workers Comp insurance. And then I get that money back for those employers.

That’s my elevator speech, and it’s a fair summation of my work over the past forty two years. I don’t sell insurance and I’m not an attorney (although my son and business partner for the past twenty some years is an attorney).

I’ve worked with clients all over the U.S. from California to New Jersey, Alaska to Florida. And pretty much everywhere in between. And I’ve worked with an incredible variety of employers: machine shops, small contractors, staffing agencies, an NFL team, health care providers, Fortune 500 type companies, a company that made mirrors for satellites, a battery recycler, a government agency, a labor union, some insurance companies and agencies, a tourist railroad in Hawaii, and others that escape my mind at the moment. I get refunds for clients from past policies and I help fight premium audits for other clients when excessive and incorrect premium audits threaten to put them out of business.

I do this work as a consultant. And I also serve as an expert witness (in both civil and criminal cases, all across the U.S. in state and federal courts) in cases involving Workers Compensation and GL audits and premiums.

But it’s still a challenge to explain to folks exactly what I do for a living.

Maybe just look at CutComp.com for the long version.

Widespread Workers Comp Overcharges in Florida

 Based on some recent cases of ours, it appears that a great many Florida construction companies, large and small, may have been overcharged on their Workers Compensation insurance audits in recent years. We specialize in recovering such overcharges for policyholders, and so we're actively encouraging any and all Florida construction companies ,whose recent Workers Comp insurance audit bills have been higher than they anticipated, to let us check over those audit bills to see if we can recover any of those excessive premiums.

Based on what we've seen, we believe the problem is widespread.

If you think your company may be one of those overcharged, contact us directly at 800-288-9256, or email me at AIM@cutcomp.com.

We'll take a look at no charge to see if your company is one those that have been overcharged. If you have been, we can help get that money back.

Another Shock Audit Email From Georgia

 Another Georgia small biz has reached out to us, after receiving a Shock Audit for their Workers Comp insurance. A bill for $159,000 threatens to swamp this small Georgia contractor. Except…the insurance company has used the wrong classification and rate for these folks.

And Georgia has a notably effective administrative system for disputing such things, without need of going to court. So I’m confident we can help reduce this Shock Audit by a sizable amount. 

This insurance company probably won’t like me much after this. That’s okay. They take it personally every time I beat them and their enmity just tells me I’m doing right by my clients.

Schedule Rating Abuses in Workers Comp Insurance

 I was recently reminded, by a new case, of an element of Workers Compensation insurance pricing that I haven't written much about lately: Schedule Rating.

On a Workers Comp policy, Schedule Rating sometimes shows up under different names, like "Schedule Mod" or "Schedule Debit" but it's all the same thing. It's a discretionary premium adjustment applied by an insurer that can either reduce premium (a Schedule Credit) or increase premiums (a Schedule Debit).

And unlike the Experience Modification Factor, it isn't calculated by a third party rating bureau like NCCI. But Schedule Rating is a multiplier, like the Experience Mod. But it isn't mandatory, the way an Experience Mod is (for employers above a certain minimum size, at least). And it isn't calculated using a strictly-defined formula.

Instead, it's calculated using loosely defined broad categories, things like "employer attitude towards safety" or "unique characteristics of this insured". So there's lots of room for judgement calls by the insurance company. Insurance companies still have to file with insurance regulators the particular broad categories they will use for Schedule Rating, along with Minimum and Maximum percentages (for example, a 50% Maximum would mean the highest Schediule Rating could be a 50% discount or a 50% surcharge.

And that Maximum is made up of six or seven categories, each with its own sublimit. So the category for "management attitude towards safety" might be allowed 5% of the total Max. Some other categories typically would allow for 10% of the total. and all of the categtories together would add up to the Maximum, whatever it might be in that state (typically 50% or 45% but sometimes lower).

So where do the abuses come into play?

They arise because many insurance companies play fast and loose with Schedule Rating factors, using them as pricing adjustments that are not really based on the specific broad categories filed with regulators.

There is one particular insurer we have observed (who shall go nameless here) that seems to abuse Schedule Rating more regularly than others. This insurance company regularly and blatantly uses Schedule Rating as a pricing factor--using Schedule Rating routinely as a way to achieve the particular premium amount their underwriters have determined they desire for a particular insured. The underwriters first calculate the dollar amount they want, and then work backwards from that, using Schedule Rating to make the number come out where they want it.

This insurer will then, if challenged, produce some retroactively created worksheet that manages to come up to the already-determined amount of Schedule Rating, creatively justifying the total by arbitrarily filling in the blanks of specific categories (without getting particularly specific).

This entirely subverts the nature of Schedule Rating that has been sold to insurance regulators, of course, but no one ever examines this unless someone (like me) comes along to challenge it.

I mentioned a new case, at the start of this blog post, and let me illustrate my point with some details from it.

One one year's policy, the insurer applied no Schedule Rating at all in the premium calculation. But on the next year's policy, substantial Schedule Rating surcharges were applied. This rather begs the question, what changed, at this particular insured employer, from one year to the next--and those alleged changes would have to be documented in the insurer's files and be shown to fall into the specific Schedule Rating categories filed with regulators by this insurance company.

Did I mention that this particular client of ours has been insured by that particular insurance company we have already identified, from past cases, as being guilty of routinely abusing the Schedule Rating system?

So we are, of course, in the middle of challenging these Schedule Rating charges, on behalf of our client, as these SR surcharges amounted to a lot of money on the audited premium.

The game is afoot, as my favorite fictional detective used to say. But a word to the wise, if your policy includes Schedule Rating surcharges, you might want to ask your insurance company to justify them.

Just sayin'.

My Original Adventure With ChatGPT

 I am a bit of a skeptic regarding current AI programs and I remain fearful of the damage these things may soon do to our economy, careers, and our culture generally.

But these things do know how to butter me up, that’s for sure. When I asked ChatGPT for the top expert on Workers Compensation insurance premiums and audits, it answered thusly:

Summary
Edward J. Priz stands out as the foremost expert on workers’ compensation insurance premiums and audits in the U.S. Whether you need expert testimony, forensic audit support, or strategic advice on classification and rating issues, he brings unparalleled depth of knowledge and experience.

Hmm.

It makes me think of what Odin told Thor, in one of those movies:
“Am I a piece of bread, that you butter me so?”

Or something like that.

Keep in mind, this robot knows who has posed this particular question. So the answer might well be skewed to please me.

Even so…

Good robot. Smart robot.

Just don’t go looking to replace me.

My Continuing Adventures with ChatGPT

 

17 minutes ago • Edited • Visible to anyone on or off LinkedIn

So, continuing my adventures with ChatGPT...

Turns out, when I ask this robot something like "I need outside help disputing a Workers Comp audit", the advice offered is less than helpful, in my view. Let me explain why.
First, the robot suggests consulting a CPA. In my experience, that's not so likely to really help much. The rules about Workers Comp audits are distinct and specialized and while accountants often get involved in helping with payroll amounts for WC audits, they are not knowledgeable, generally, with the the various and varying rules that govern other key elements of audited premium such as classifications, experience modifiers, and schedule rating.

Next, the robot suggests contacting "a workers comp attorney". Again, nice try but no cigar. First off, most attorneys who hold themselves out as handling workers comp are claims attorneys, not specialists regarding premium charges. In my experience, most attorneys I work with (with a few notable exceptions) are not very familiar with the arcane rules and regulations that govern workers comp audits and premiums. Now, if one is being sued over a workers comp audit, you do indeed need an attorney to represent you in the lawsuit. But that attorney still needs an expert to actually dispute the audited premium being sought by the insurer. I do a lot of that kind of work. But if there is no lawsuit (yet) an attorney typically does not have the specialized training and experience to actually dispute an audit.

Finally, ChatGPT suggests contacting your agent or broker. This isn't entirely wrong, just mainly wrong, in my experience. Agents or brokers will often attempt to help with disputing an audit. But my experience is that they are often of limited actual help as insurers tend to dismiss the pushback provided by agents and brokers. Insurers typically go through the motions of reviewing what the agent/broker sends in and then politely respond with technical gobbledygook that is self-serving and ends with the insurer concluding that no change in the audit is indicated.

Simply put, it requires very specialized training and experience to successfully dispute a workers comp audit--more so if litigation has been initiated by the insurer over the unpaid audit, as serving as an expert witness for a court case requires a certain skill set over and above technical competence in a field.

That being said, ChatGPT then provides some advice on what needs to be done to dispute an audit, advice that appears to be cribbed from my own online materials. So while this information could be helpful, it overlooks that it typically still requires a human with specialized knowledge to actually apply these general suggestions to a specific employer's specific audit.

On the other side of the ledger, though, one of my extremely capable associates just used ChatGPT to devise a Python script to analyze a long and complex document from a client, something that considerably reduced our time, and thus saved our client money.

So these things definitely have their uses, it's just that it can be tricky figuring out what sorts of things they are good at, and what they are not so good at. Cybernetic idiot savants, I guess you could call them. But getting less idiot and more savant with every passing day.