Focus on Workers Comp: Ready to Play Audit Double Jeopardy?
The Massachusetts Rating & Inspection Bureau (WCRIBMA) has issued Circular Letter No. 2348 establishing an “audit noncompliance charge” which mirrors the approach already operating in NCCI states. Any comp policy holders who try to avoid the premium audit are in for a big shock.
The Bureau seriously wants comp policy holders in the voluntary market to cooperate with auditors. If a policy holder refuses to allow auditors access to their books, onerous penalties come into play: they will be fined two times their estimated premium! Thus, an account with $25K estimated premium will owe $50K in penalties, plus the original $25K premium. Ouch!
The Devilish Details
The new program comes with a few interesting qualifiers. It’s a pilot and applies only to policies written between May 1, 2019, and April 30, 2021. The penalties apply only to policies that are issued with Policyholder Endorsement #WC 20-03-03-D (identical to the NCCI endorsement). Carriers have the option of attaching the endorsement to specific classes of business, so they may well choose to focus on general contractors in construction and on trucking, two areas where there is often heavy reliance on (not so) “independent” contractors.
If policy holders do not cooperate with the audit, the carrier must provide two notices of violation separated by at least five days, with the final notice sent by certified mail to both the policy holder and the agent. Once this point is reached, the policy holder still has 10 days to respond. My guess is that this intimidating policy will rarely play out to the end: most comp insureds, faced with the big penalties, will grudgingly let the auditors in. The odds in playing this particular game of double jeopardy are worse than a crooked slot machine. The smart money is on compliance with the audit.
Senior Workers Compensation Consultant