By Elizabeth Lowman, Elevanta.
Insurance fraud can fall into one of two categories: hard fraud or soft fraud. An incident is considered hard fraud when someone deliberately fakes an accident, injury, theft, arson or other loss to collect money. These are the typical kinds of false claims made by employees or customers.
Since 2007, fraudulent insurance claims in America have increased year-over-year in virtually every category, but here is a look at two specific categories: workers compensation and general liability, as well as tips for how to protect yourself against false claims for both.
Workers’ Compensation Fraud
Workers’ compensation insurance protects employees who are hurt on the job. This valued employee benefit pays for medical expenses, lost wages and other expenses while a worker heals.
While most workers are very honest, a small number scam this coverage for personal profit and the damage they cause is vast. Workers’ comp fraud is a large crime in America these days. Tens of billions of dollars in false claims and unpaid premiums are stolen every year.
Scams are forcing premiums higher — draining business profits and costing honest workers their pay and jobs.
Acts of fraud in this category can include willfully making a false statement to get benefits; concealing information to receive benefits; misrepresenting how an injury occurred; inflating costs; fabricating injury or anything willfully done to exaggerate the claim.
There are a few clues to be suspicious of when an employee reports this kind of claim, such as the injury is claimed after being put on final warning. Maybe the injury is reported first thing Monday morning and claims it happened the prior week; the claimant stops communicating or the claimant refuses a diagnostic procedure to confirm the nature or extent of an injury. While these are not guaranteed tip-offs to fraud, it is worth noting when one or more of these potential warning signs occur in conjunction with an insurance claim.
However, experts recommend that if you do observe these red flags or other indicators of fraud, not to take action on your own to deny a claim or otherwise alert a suspected perpetrator of your suspicions. You may inadvertently hinder the investigation. Instead report these indicators of fraud to your carrier.
So what can you do to protect your business against false workers’ compensation claims? It’s all about documentation and reporting:
- Get a written statement from the claimant, including a description of injuries in his/her own script.
- Get all witness statements in writing.
- Capture any discrepancies in writing (i.e., a slip on a wet floor that was unwitnessed yet the employee’s clothes were dry.)
- Get information to your carrier immediately.
- Let the carrier know if there are employment issues with the individual submitting the claim.
General Liability Fraud
General liability is one of the broadest forms of insurance. It covers a number of things that are not covered under other specific coverage, such as premises liability, products liability and completed operations. Damages can include bodily injury (including death), property damage, personal injury (slander, libel) or advertising injury.
Premises liability provides protection for injuries to those (other than your employees) who are on your premises/property, such as guests. The most common premises liability claim is slip and fall.
One of the best ways to protect your business against a fraudulent claim is to keep thorough and consistent records. It is also wise to periodically check your premises for potential hazards and record the time of the inspection. These records will help if you need to prove that a threat was not present at a specific time of a claim.
General liability fraud is much harder to execute than workers’ compensation fraud. It can also be harder to defend and prove as fraud. The best defenses are diligence in record keeping, alertness, being observant and thinking about what could happen in your business before it happens. This will allow you to be on the lookout for any fraudulent activity or claims against you.
Reporting
Insurers and consumers can report fraudulent activity to several sources, all of which are fighting to reduce and eliminate insurance fraud. These include state fraud bureaus, the National Insurance Crime Bureau (NICB), the Coalition Against Insurance Fraud (CAIF), the National Association of Insurance Commissioners and finally, your broker, who can help you navigate these unusual issues.
Insurance Fraud Stats
- Three percent of slip-and-fall injuries are fraudulent. (National Floor Safety Institute)
- Bogus injury claims and related costs — such as litigation — amount to nearly $2 billion a year. (Coalition Against Insurance Fraud)
- The five states generating the most questionable slip-and-fall claims from 2010-2011 were: California (667); New York (280); Texas (245); Illinois (230) and Florida (286). (National Insurance Crime Bureau)
- Insurance fraud has almost become a way of life in the U.S. In fact, during particularly difficult financial times, filing fake slip-and-fall accidents are the only way some people stay afloat. (Insurance Regulatory Law)
- In a survey conducted by FICO, 35 percent of insurers estimated that insurance fraud costs represent 5-10 percent of their total claims, while 31 percent said the cost is as high as 20 percent.