Rising workers compensation rates, coupled with a still-struggling economy are leading more businesses to try anything they can to lower their insurance bills—including fraud. According to the Fiscal Policy Institute, workers comp premium fraud cost carriers $489 million in premiums in New York City alone.
Nationwide, the losses are even more astounding.
“I am absolutely flabbergasted by the amount of premium fraud I’ve seen in the last couple of years,” said Ranney Pageler, a 24-year workers comp veteran and vice president of the fraud investigations department with
EMPLOYERS Insurance Company. “I’d say in the first 20 years I was with EMPLOYERS, I saw two premium fraud cases. Last year, we worked on somewhere between 80 and 90 investigations.”
The fallout from premium fraud doesn’t just affect carriers, however. Artificially low workers comp rates mean higher premiums for everyone and—for producers selling the policies—possible legal liability.
In the emerging electronic insurance environment, it is all too easy for unscrupulous business owners to misclassify workers, underreport payroll and avoid higher experience mods to score a lower workers’ comp premium. The producer selling the policy may not be aware of it, but if fraud catches up to a business owner, the producer is typically first in the line of fire.
“Nine times out of ten if law enforcement confronts a company over workers comp fraud, the first words out of their mouth are ‘This is what the agent told me to do,’” Pageler said. “Then there’s a knock at the door and you have a subpoena on a policy that went through you.”
Pageler wants producers to be prepared to act as “witnesses, not a suspect.” To this end, he shared nine tips for agent self-protection with Insurance Business:
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Obtain an original signature on the application. Get somebody to sign something to validate authenticity, rather than relying on electronic signatures.
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Identify the person you are dealing with. Get a driver’s license from the person who is purchasing the policy.
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Determine who are the “responsible parties” and identify them. Who came in your door? Be able to identify these people.
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Familiarize yourself with the business. Are they in your neighborhood? Do they have a physical address rather than a P.O. box? If not, these could be red flags of potential premium fraud.
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Keep notes of phone calls. Who is calling on behalf of the company? Is it the same person every time, or do these callers change?
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Have a responsible party acknowledge the estimated annual remuneration. Find a third-party source to obtain quarterly wage and withholding report forms.
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Obtain as clear a picture as possible of the actual corporate structure. Know who is in charge and how the business works. Keep good notes on any changes.
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Keep and maintain all original records, regardless of electronic filing. Electronic filing only places additional emphasis on original records that are maintained by insurance producers. Many search warrants and subpoenas are issued for these records.
“That is your get-out-of-jail-free card if you’re an agent,” Pageler said.
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Report all claims in a timely manner. Over time, companies are better able to invent circumstances that may reduce or limit payout.
“It’s a good idea to have all of this,” Pageler said. “That way, you can say, ‘This is what we were given.”
