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What happens when a policyholder doesn’t cooperate with a final audit?
We will attempt to publish an experience modification excluding the unaudited payroll, but using all of the reported losses. The Experience Rating Plan does not allow the use of estimated or unaudited payroll in the experience modification calculation. When an insurer reports estimated payroll to the WCIRB due to the failure of an employer to cooperate with the audit, we send a letter to the policyholder to inform them of the potential impact and encourage them to cooperate with the audit. If we do not receive the audited payroll within 60 days, we will attempt to publish an experience modification excluding the unaudited payroll, but using all of the reported losses.

What if the exclusion of payroll results in the employer no longer qualifying for experience rating?
For 2017, the Insurance Commissioner approved a change that will allow debit experience modifications that exclude unaudited payroll to be issued even if they do not meet the eligibility threshold, provided the policyholder was experience rated in the immediately preceding year.

When an experience modification excludes unaudited payroll, is it really a reflection of potential future losses?
It is a financial incentive for the policyholder to cooperate with the audit. The WCIRB’s ability to produce accurate experience modifications, expected loss rates and advisory pure premium rates is dependent upon accurate audited payroll reporting. The change adopted by the Insurance Commissioner effective January 1, 2017 will help towards that aim.

How can I tell if an experience modification excludes unaudited payroll?
On the experience rating worksheet, there is an “E” designation next to the experience modification to indicate that the rating excludes unaudited payroll. The policyholder also receives a notification from the WCIRB that their experience modification excludes estimated payroll but includes any losses.

What if the policyholder later decides to cooperate with the audit? Would you revise the experience modification once you receive audited payroll?
Yes. When the insurer submits a unit statistical report (USR) correction with the audited payroll to the WCIRB, the current and two immediately preceding experience modifications are subject to revision in accordance with the Experience Modification Corrections–Effective Dates rule in the Experience Rating Plan.

From WCIRB
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