The Main Errors We Find When Auditing Workers Compensation Policies

We have examined a large number of Workers Comp policies in our existence. We find errors at least 50% of the time. The most common errors that we have seen are (in order from most common to least):

• Over-reserving or not closing files timely (see previous post on Total Incurred)
• Employees misclassified into the wrong classification code
• Governing classification code wrong - very expensive
• Subcontractors classified as employees
• Wrong payroll items counted as Workers Comp remuneration
• Two or more distinct businesses classified as one business

When you look at your Workers Comp insurance policies and loss runs, please remember that there are 130 variables that go into a claim, and there are 34 steps to taking the Total Incurred and converting them into your E-Mod or X-Mod. Then, there are approximately 1o more steps once you have your Experience Mod to calculating your premium. As each of the variables feed into each other, you can multiply them to see what a chance of error would be for a given Work Comp policy.

130 * 34 * 10 = 44,200

Hold on, though as that is for one claim figuring into your premium. If you have 20 open claims, then you would multiply 44,200 * 20 = 884,000 So, there are 884,000 calculations or variables that must all be correct for you to pay your correct premium. Are you still willing to just write a check to the Workers Compensation insurance carrier?

I wrote about the Self-Insured Phenomenon yesterday. At this point, if you are self-insured, are you thinking that you're OUT of this type of system? The actuary that sets your LDF's or Loss Development Factors has as many variables and combos to examine. If you are self-insured, then the number of open claims may possibly be even higher.

I will talk about each of the above errors over the next few days. Notice how many times the word Classification is in the above list.