Meet Sharon L. Carney

Sharon L. Carney is assistant vice president of the Premium Audit Advisory Service (PAAS®), a unit of ISO, and has more than 30 years of insurance industry experience. She serves on the premium audit committee of the IIAA of the AICPCU and is the chairperson of the premium audit standards working group for ACORD. She graduated from McNeese State University with a bachelor’s degree in mathematics and holds both the Associate in Premium Audit and the Certified Insurance Premium Audit designations.

In these tough economic times, what challenges will workers compensation carriers struggle with?
One big challenge for workers comp carriers has been — and will continue to be— premium collection. Traditionally, a carrier will charge the initial premium and then audit the premium months after the policy expires. Once the auditor adjusts the premium to reflect changes in the policyholder’s business and exposure over the past policy period, the policyholder usually faces paying the difference of the initial premium and the adjusted premium plus the policy renewal amount with the adjustment. For the insured, that’s a lot of unexpected outlay at one time. Carriers have a hard time collecting the true premium they are owed because they face losing the business altogether. In this economic downturn, many insureds may not have the money to pay their premium, let alone any adjustments, and may drop the coverage. There may also be an increase in the number of companies filing for bankruptcy. And when an insured goes bankrupt, the carrier is generally the last in line to collect any adjusted premiums they are owed.

What can carriers do to reduce the chronic problem of lost premium or premium leakage?
Carriers need to gain a better understanding of each risk they underwrite as early in the process as they can. One way is to perform preservice audits 60 to 90 days into the policy period and make any premium adjustments then, instead of waiting until after the policy expires. Another way is to work more closely with the agents, so they notify the carrier every time an insured’s exposure changes over the term of the policy. Some carriers have started looking to predictive modeling and data analytics to help in the area of premium audits.

Can you elaborate?
Sure. Predictive modeling applies sophisticated analysis techniques to statistical-experience data and examines the interactions of hundreds of predictors to predict future results with greater accuracy than other methods. Predictive analytics offers the potential for carriers to prioritize premium audits and identify accounts most likely to require a large premium adjustment, so they can concentrate audit resources on those accounts first. Being able to prioritizing audits will help insurers address discrepancies faster. Even moving average receivables forward 30 days can be worth millions of dollars to the bottom line of a carrier with a sizable audit base. By using premium discrepancy predictions proactively at the underwriting stage of the process, carriers can benefit from better underwriting decisions and increased customer retention, since there will be fewer end-of-policy cash-flow surprises for the customer and agent.