Audit

Audit rules for Voluntary and Assigned Risk markets in Indiana.

Voluntary Market Audit Standards

Under the terms of the workers compensation policy, a carrier or the ICRB may audit the insured’s records within 3 years after the policy period ends, per the Forms Manual of Workers Compensation and Employers Liability Insurance approved by the Indiana Department of Insurance. ​Specifically, Part Five-Premium, Rules G. and E speak to this:​​​

Rule G. Audit: “You will let us examine and audit all your records that relate to this policy. These records include ledgers, journals, registers, vouchers, contracts, tax reports, payroll and disbursement records, and programs for storing and retrieving data. We may conduct the audits during regular business hours during the policy period and within three years after the policy period ends. Information developed by audit will be used to determine final premium. Insurance rate service organizations have the same rights we have under this provision.”

Rule E. Final Premium: “The final premium will be determined after this policy ends by using the actual, not the estimated, premium basis and the proper classification and rates that lawfully apply to the business and work covered by this policy. If the final premium is more than the premium you paid to us, you must pay us the balance. If it is less, we will refund the balance to you.”

​Failure to Comply with Audit
Most states (33) have approved Item Filing B-1429 “Establishment of Audit Noncompliance Charge.” effective January 1, 2017. This Basic Manual Rule 3-A-13-b gives carriers the authority to invoice up to two times the estimated annual premium if an employer fails to comply with an audit. NOTE: THIS FILING IS NOT APPROVED FOR USE IN INDIANA.

Since the filing is not approved in Indiana, the carrier may not show this as a premium segment under item 4 on the Information Page (dec), but instead would handle this as estimated exposure on the audit statement. Their next action steps could be the use of a collection agency or attorney to collect the debt. Ultimately, a carrier may bring a civil action in an attempt to collect the premium, attorney fees, and interest.

Under Indiana law (IC 27-1-31-2), a carrier may cancel a policy due to misrepresentation. This reason might apply in a case where an employer didn’t pay premium and goes to a new carrier and declares there is no premium owed to prior carriers.

Assigned Risk Audit Standards

Assigned Carrier Performance Standards—2009 Edition
Performance Standard 6—Audits

Effective 01 Jan 2019 12:00:01

  1. Timeliness
    1. Employer Requested Audits
      1. Physical audits will be performed whenever requested by the employer with reasonable grounds.
      2. The requested audit must be completed, billed, recorded, and closed on the company records within 90 days of the date of receipt of the request.
    2. Preliminary Physical Audits (PPA) or Interim Audits (Exceptions: AK)
      1. PPAs are performed for qualifying employers in accordance with PS 6-C as follows:
        1. All PPAs must be completed within 90 days of policy effective date or receipt of assignment by the assigned carrier, whichever is later, with the date of receipt being maintained in the file.
        2. The assigned carrier must conduct a PPA within 75 days of the endorsement issuance date if, at issuance, the policy:
          1. Did not qualify for a PPA, and
          2. Is subsequently endorsed within 90 days of policy effective date, and
          3. Now meets the PPA requirement
        3. The assigned carrier is not required to conduct a PPA if, at issuance, the policy:
          1. Qualified for a PPA, and
          2. Is subsequently endorsed within 90 days of policy effective date, and
          3. No longer meets the PPA requirementInterim audits are performed at the assigned carrier’s discretion.
  • Final Audits (Additional Standards: AK) (Exceptions: AK, GA, OR)
    1. The assigned carrier must develop standard timeliness procedures to evaluate a policy’s qualification for a final physical audit in accordance with PS 6-C-2. Mail or telephone audit reports are permitted only when a physical audit is not required.
    2. All final audits must be completed, billed, recorded, and closed on the company records within 75 days of:
      1. The policy expiration or the effective date of cancellation if initiated by the assigned carrier, or
      2. The effective date of cancellation or the date of receipt of cancellation notification, whichever is later, if initiated by the employer.
  • Three-Year Audit Cycle
    (Exceptions: NJ)
    1. A final physical audit must be conducted for a qualifying employer if a final physical audit was not conducted within the last three years, regardless of whether or not the employer qualified during the last three years. For examples, refer to Appendix C. Note: If the assigned carrier chooses to perform a final physical audit at its discretion for a renewal policy within the three-year time frame, that final physical audit would be used to determine the next three-year qualifying policy.
    2. If an employer’s new business policy did not qualify for a final physical audit, the employer must receive a final physical audit the first year it qualifies, which begins the three-year audit cycle.
    3. For purposes of the three-year audit cycle:
      1. Policies that are cancelled and reinstated with a lapse are combined to be treated as an individual full policy term based on the original effective and expiration dates.
      2. An employer reassigned back to a prior assigned carrier must be serviced as a renewal; however, if there is a gap of six months or more between the policy periods, the reassignment must be serviced as new business.
  • Cancelled and Reinstated Policies
    Audits of cancelled and reinstated policies must be completed in accordance with the Cancelled and Reinstated Policies Audit Table.Cancelled and Reinstated Policies Audit Table
    (Exceptions: AK) If a policy…And…Then…Cancels within 90 days of the policy effective dateA PPA has not been conductedA PPA is not required and a final audit must be conducted in accordance with PS 6-A-3 and 6-C-2. A PPA has been conductedA final physical, mail, or telephone audit must be conducted in accordance with PS 6-A-3.Qualified for a PPA and:
    • Was in cancellation status but did not cancel
    • Cancelled but was reinstated with a lapse
    • Cancelled but was reinstated without a lapseA PPA has not been conducted on that qualifying policyThe time requirements of PS 6-A-2 are extended for the number of days the policy was in cancellation status plus any lapse, with the lapse not exceeding 60 days.Cancels more than 90 days from the policy effective dateN/AAll audits must be conducted in accordance with PS 6-A-3 and 6-C-2. Cancels and is reinstated with a lapseA final audit has not been conducted on the first short-term portionThe assigned carrier must complete a final audit covering the entire policy period between the original effective and expiration dates. Note: Premium cannot be charged for the lapsed coverage.A final audit has been conducted on the first short-term portionThe assigned carrier must complete a final audit covering the period from the effective date of reinstatement to the expiration date. Note: Premium cannot be charged for the lapsed coverage.For more information about reinstating with lapses and rescission of cancellation, refer to Basic Manual Rule 4-A-4-a(4).
  • Billing
    Billing as a result of an audit must:
    1. Occur in accordance with Performance Standard 7—Billing and Collection of Premium, and
    2. Be sent electronically or mailed to the policyholder within the time frames detailed in PS 6-A.​