WORKERS ’ COMPENSATION
Tips For Preventing Premium Fraud In Workers ’ Compensation BY : JODI WILLIAMS
TAKE A moment to picture the ideal workers ’ compensation insurance policyholder . What are the qualities this business owner would possess ? It ’ s likely you would visualize a policyholder who pays insurance premiums on time , cooperates with audit requests , assists claim adjusters during investigations , and meets with injury prevention and wellness consultants to gain important knowledge about safe worksite and employee practices . You may also picture a business owner who is honest , hardworking , agreeable , and who inherently strives to do the right thing .
While most of our policyholders meet most or all of these criteria , we unfortunately encounter some policyholders who do not . In the worst situations , policyholders are committing insurance fraud by intentionally misconstruing information on their new business applications in one or more of the following ways :
• Misclassifying employees by assigning employees lowerrisk class codes or identifying employees as 1099 subcontractors instead of as employees
• Underreporting payroll
• Misrepresenting the true nature of their business
While such a policyholder may be saving money up front by paying a lower premium , the repercussions of this dishonesty have lasting effects for the policyholder ’ s employees , the insurance broker , the insurance carrier , and the policyholder . An employee ’ s claim may become more complicated to investigate and take longer to close if the employee was misclassified by the policyholder . The focus for claim adjusters should be getting injured workers the medical care they need and getting them back to work , not playing detective to determine the employee ’ s status at the policyholder ’ s workplace . Brokers may lose out on commission they are rightly owed as a result of premium fraud . The bottom lines for both brokers and insurers are negatively impacted . An unfair business advantage is created in the marketplace because the fraudulent business has reduced its operating costs relative to an honest business . Premium fraud is illegal and the policyholder ’ s dishonesty may result in fines or imprisonment .
The Massachusetts Attorney General ( currently Maura Healey ) and the Insurance Fraud Bureau of Massachusetts ( IFB ) investigate deceptive business practices such as premium fraud and prosecute those who are out to avoid paying the true amount of money owed for their workers ’ compensation policies .
For instance , on December 29 , 2016 , the Stoughton Patch reported that a Stoughton , Massachusetts , business owner was “ indicted on charges of workers ’ compensation fraud in connection [ with ] allegedly making misleading statements during audits of his workers ’ compensation policies and failing to disclose the true size of his company payroll .” This business owner avoided paying approximately $ 40,000 in workers ’ compensation insurance premiums . At the time of this publication , the business owner is awaiting arraignment .
Insurance brokers can play an active role in preventing this type of fraud from occurring in the first place . Here are some common warning signs of business owners that may be attempting to commit workers compensation premium fraud , according to an article titled , “ 6 Red Flags for Work Comp Premium Fraud ” by Ranney Pageler on Insurance Thought Leadership ’ s website :
• “ The business address is a mail drop or P . O . Box , or the business is physically located in another part of the state from its mailing address .
• A prior insurance carrier has dropped the business or the business frequently changes
SPRING 2017
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