November 14, 2013 Leave a comment
Audit – a single word that strikes fear into every tax-paying American’s heart. But in the workers’ comp world, the audit process isn’t something to be feared. It’s called a premium audit, and it ensures your insurance carrier charged you the correct premium.
If you’re preparing for your first premium audit, here are a few basics I hope will help you rest easier.
What is a premium audit?
A premium audit is a review of your financial records and other business documents to determine the correct premium for the expired policy period. If the auditor determines you paid too much, the insurance company will return your excess premium. If you under-paid, they will invoice you for the additional premium.
How is premium determined?
Premium is based on the classification of the remuneration, which includes wages and other compensation your workers receive. Your underwriter calculates your premium at a rate per $100 of remuneration. The rate for each classification varies.
How is my classification(s)/rate determined?
With a few exceptions, your classification is based on your business operations in Texas. The Texas Department of Insurance approves rates for each classification.
What are some factors that might cause me to owe additional premium?
- Hiring additional employees during the policy term
- Raises and bonuses paid during the policy term
- Under-estimating your remuneration when the policy was issued
- Changing operations or adding a new operation that is subject to a higher-rated classification
Preparing for your first audit?
If you are preparing for your first premium audit, check this list of documents your insurance carrier might want to review. If you want to know more about the basics of premium audit, visit Texas Mutual at texasmutual.com/employers/pabasics.shtm.
About the author
John Hansen has 28 years’ experience in premium audit, the past 10 years with Texas Mutual. John trains our premium audit staff, reviews audits for quality and compliance, and conducts large-account audits. John also shares his expertise with insurance agents as a presenter at Texas Mutual’s free workers’ compensation workshops.