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Three Reasons Insurers Should Hire A Law Firm to Handle Annual Workers' compensation Audit Premium Recovery Process

February 08, 2021 BY Paul Burke

Three Reasons Insurers Should Hire A Law Firm to Handle Annual Workers’ compensation Audit Premium Recovery Process

Workers’ compensation audits determine the final cost of a workers’ compensation policy and can often result in the issuance of an adjusted final bill ranging anywhere from $2,000.00 to $100,000.00 (or more). For many business owners, the audit process is mysterious and intimidating. For carriers, the results of these necessary audits often include angry insureds, millions of dollars in unpaid audit premiums, and canceled policies.

When insured employers receive an end-of-term bill asserting that the employer owes several thousand dollars to its insurance carrier, the employer may feel shocked and confused. With their limited understanding of the audit process, many employers are likely to refuse to pay this premium, leaving insurers to send these claims to a collection agency or law firm.

For workers’ compensation insurers, the choice between engaging a collections agency or a law firm is an important one. Debt collection law is a complicated, intricate and heavily regulated practice area, but the experienced attorneys at Drew Eckl & Farnham can help maximize recovery revenue while maintaining secure compliance with regulatory standards.

Here are three reasons to engage Drew Eckl & Farnham to handle audit premium recovery:

  1. Our firm can work closely with the insured to bring about greater understanding of the audit and premium recovery process, reducing anger and vitriol toward the insurance company.

There is a degree of anger in the business community about the workers’ compensation audit process. In fact, there are several websites, blogs, and internet forums dedicated to these alleged “shock audits.” However, this anger stems entirely from the business owners’ lack of knowledge as to why these increased premiums even exist. When a small business owner receives an unexpected large bill at the end of the policy term, all they see is red (and all those zeros).

Drew Eckl & Farnham understands how the audit process works and why it happens and can walk the business owner through the reasoning behind this charge. Once the business owner understands the justification for a legitimate premium increase, he or she is more likely to pay.

  1. Specialized attorneys have a profound understanding of the insurance product.

DEF attorneys specialize in the analysis and evaluation of coverage issues and have a deep familiarity with the insurance market and underwriting process. Our team members offer the combined expertise of having both Chartered Property Casualty Underwriter (CPCU) and insurance attorneys.

Workers’ compensation audits, while simple in concept, can be complicated. With their specialized expertise, our team of attorneys can review the audit results, determine whether any adjustments can be made, and explain the factual basis for the audit premium to the insured. This personalized approach helps increase the carrier’s recovery and is not available at a typical collection agency.

For example, consider the business owner who receives an unexpected $80,000.00 bill following an end-of-term audit. The business owner is upset and bewildered, and his willingness and ability to pay this bill may be limited. However, DEF’s legal team can meet with the business owner and review the audit results in detail. Due to its experience in the field, DEF can identify many of the issues that commonly cause unexpected “shock audit” premiums, such as:

  • Uninsured Independent Subcontractors: for workers’ compensation audit purposes, independent subcontractors used by the insured business owner will be deemed employees of the business owner (and thus can substantially increase the business owner’s audit premium) unless the business owner can produce a certificate of insurance (“COI”) for the independent subcontractor. If the business owner can produce the pertinent COIs, the insurance carrier may be able to reduce the amount of the audit premium claim as it no longer bears risk for any potential claims against its policy filed by these independent subcontractors. The business owner is then faced with a reduced audit premium that it understands and is willing to pay and is also more likely to renew his policy.

  • Misclassified Employees: when pricing a workers’ compensation insurance policy, carriers ascertain: (i) the number of a people employed by a business owner; and (ii) the nature of those employees’ jobs. For example, a business that employees eight roofers is much more likely to suffer a serious on-the-job injury than a business that employs four office clerks. As such, a workers’ compensation insurance carrier is allowed to charge the first business a substantially higher premium than the second. Often, business owners do not appreciate the magnitude of the financial impact of the manner in which its employees are classified for workers’ compensation purposes. DEF can work with business owners and help them understand the import and impact of these employee classifications. Once again, a bill that the insured understands is a bill that he or she is much more likely to pay.

  1. DEF’s extensive experience negotiating and litigating these claims gives insurance companies better chance of recovering their outstanding audit premium

The traditional collections model employs in-house collection efforts in the early phase, and then transfers delinquent accounts to a series of successive collection firms as the accounts age. This is often referred to as the collections “waterfall” process. Once pre-legal collection efforts are exhausted, the decision is made to move an account to a law firm for legal action and recovery. This process often results in the potential for miscommunication and information loss as accounts are transferred from one agency (and one software platform) to another. Additionally, the various agencies have an inefficient incentive to settle these claims at a discount and capture their fee before the file is transferred to the next agency. Finally, the carrier must manage these accounts through the traditional waterfall, which is expensive and time-consuming.

The DEF model integrates front-end collections and litigation into a single end-to-end business process. This method reduces the overhead expenses and regulatory risk associated with the traditional model, while enhancing the ability to communicate effectively with the debtor and develop a customized recovery solution. We have demonstrated significant savings for our clients while improving collection and recovery revenue. And we know the risk involved in taking one of these cases to jury trial, so we take every step to ensure these matters are settled before reaching that point.

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Workers’ compensation audit premium recovery is an oft-neglected area of recovery for insurance companies. But with support from the right legal team, insurance companies can pursue these claims and increase recovery revenue.

For more information on how DEF can improve collection and recovery revenue, contact the team at [email protected] or visit DEFRecovery.com.

The Journal is a publication for the clients of Drew Eckl & Farnham, LLP. It is written in a general format and is not intended to be legal advice to any specific circumstance. Legal Opinions may vary when based upon subtle factual differences. All rights reserved. 

Editorial Board:

H. Michael Bagley
(Editor-in-chief)