A client had his Workers Comp audit come in, with the carrier asking for an additional $10,000. That was 35% HIGHER than the original quote from the year before. The client used bad language, and contacted the broker for an explanation. (Workers comp insurance is used when an employee has a prop fall on them at work...)
The broker had mis-classified a set of employees for a more favorable rate. (Base Premiums are based on how dangerous the work is, times the size of the payroll for that set of workers.) By doing so, the original proposal looked fantastic and rucked over the competition. The class was quoted at 0.71 per $100 of remuneration(payroll), but should have been 5.94!!!
Now payroll varies, people get hired and fired, etc. But the insured believed the rates to be a commitment. The challenge of knowledge for the business owner is that it's not the broker who performs the audit, it's the carrier. Ergo, the carrier at the time of quoting believed that this class of employees got the 0.71 rate. When the carrier learned the true class, they had to adjust the rate... up 737%!!!
A few lessons here:
- If you're a broker and do this, stop. I'm more than happy to take that client from you, either because you lost your license, or I tell them the truth.
- If you're the business owner, think. If a quote, for anything, comes in 30% lower than all others, obviously an error exists in that quote, or in the competition's. Ask questions, and get involved. Unless you've got $10k lying around.
- If you're the business owner, learn. You must learn how each one of your commercial policies work. I know, I know...you're not in the insurance business, but neither are a good chunk of the licensed fools out there doing stuff like this.