You’re probably on the lookout for workers who file fraudulent workers’ compensation claims—but how carefully are you watching your insurer? There has been a great deal of emphasis on claimant fraud, healthcare provider fraud, and employer fraud in the workers’ compensation system, but insurer fraud has received relatively little attention.
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State regulatory agencies routinely investigate and prosecute claimant fraud—fraud committed by employees who have made workers’ compensation claims—and provider fraud, in which workers’ compensation healthcare providers bill for services not provided or other forms of fraud. State agencies also regularly prosecute employer fraud—most commonly committed by employers who fail to carry workers’ compensation insurance or who fail to carry enough insurance because they are underreporting or misclassifying their employees.
Insurer fraud, in contrast, is largely uninvestigated—in part because state regulatory agencies have historically relied on insurers to have sufficient ‘internal controls’ against fraud. In the absence of state vigilance, it falls to employers to protect themselves from fraudulent insurer practices.
What forms does insurer fraud take, how does it hurt employers, and what can vigilant employers do to identify and combat this insidious form of theft?
Premium Fraud
According to the state of California Department of Insurance (CDI), premium theft or embezzlement is the single most prevalent type of insurance provider fraud. In this type of fraud, an insurer collects premiums but then never actually provides insurance coverage. Sometimes agents pocket premiums and then provide false certificates of insurance; other times, companies are set up to look legitimate and collect premiums—but never pay on claims.
Protect yourself: Make sure your insurer is listed on your state’s list of disability reinsurers. When claims are filed, follow up with your insurer directly, as well as with your employees—not just your agent—to make sure they are being dealt with.
Insider Fraud
Insider fraud involves the handling of policies and claims for personal gain by claims managers, claims administrators, outside investigators and agents. Typically, state agencies have left the policing of this type of fraud to insurers on the assumption that it is perpetrated by unscrupulous individuals in the organization who will be caught by their own internal auditors and because identifying and investigating this type of fraud may require access to the financial processes of an insurer’s claims adjusting unit. In recent years, however, many states have begun explicitly investigating this type of fraud.
Protect yourself: Any time you cannot get satisfactory answers to questions about your insurance, review relevant documents, obtain prompt action on claims, or have claims closed in a reasonable period of time, look deeper. Review your reserves regularly; they should be set no higher than 10% of the amount actually paid at the time of closing. Make sure that claims are closed promptly, and check with the state to make sure that accurate data is being reported about your company.
If you suspect any form of insurance fraud, you can report it through your state’s Department of Insurance.
For more tips on protecting yourself from frauds and counterfeits, you can’t beat Safety.BLR.com®. It’s the real deal.