Why It Works

Why do overcharges occur?

workmans compensation right Workers compensation overcharges occur because of a complex system put in place and governed by clerical personnel and actuators in 50 states. Your premium is based on a complex system including calculations of your classifications, rates, payrolls, and experience modification. Here are some reasons that you get overcharged.

Insurance Industry Turnover
Personnel turnover in the insurance industry is notoriously high. Underwriters, premium auditors, and technical personnel typically move between jobs and companies once their job is learned. It is common knowledge that insurance companies are little more than training grounds for more stable and better paying careers. An insurance company branch office is as much a classroom as it is a business. A typical underwriter or premium auditor begins his or her career at the insurance carrier. In a few years he or she will move to an insurance agency or broker where their skills are refined. The more ambitious will eventually move to private industry and assume the role of Risk Manager.

Local Regulators
Insurance regulation is conducted at the state level. There are fifty state Insurance Departments and each department implements and enforces its own set of laws. Each state relies on expertise from one of the 13 different state rating bureaus or the NCCI. When an Insurance Department is contacted for assistance from a policyholder they often defer to the local bureau or NCCI. And the Workers Compensation bureau or NCCI is itself a creature of the insurance industry. Together, they have developed an incredibly complex system that is, at the same time interrelated and independent.

Aggressive Pricing
The complex system to determine premium allows for mischief. Since there is no significant oversight, there exists little to inhibit the impulse to maximize premium. Some insurance companies, even after they have learned of a mistaken procedure, apply that wrong procedure to other policyholders. In some cases, it is normal to overcharge. Once discovered, the insurance company will rectify the mistake, but only for the policyholder that complains. Everyone else continues to be overcharged.

Complexity
The workers compensation pricing system is incredibly complex. The scope of classifications alone is mind-boggling. While most states have approved about 600 different classifications, the number actually ranges from 480 (Massachusetts) to 725 (New York). Interpretation of classifications varies from state to state. Insurance underwriters, premium auditors, and technicians frequently handle multi-state territories. They are required to know all the rules and nuances of multiple jurisdictions. As a practical matter, even conscientious staffers are overburdened.

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