Many business owners are concerned about claim-related fraud. According to a recent survey from EMPLOYERS, a specialty workers’ compensation carrier, more than 1 in 10 small business owners are concerned that their employees would commit workers’ compensation fraud by faking an injury or illness to collect benefits.

Here are three common examples of workers’ compensation claim-related fraud:

• The exaggerated claim: A worker who initially sustained a legitimate work-related injury may exaggerate its severity to collect more money, stay off the job for a longer period of time than necessary, or both.

• Working while collecting benefits: Claimants receiving workers’ compensation benefits may state that they aren’t able to work, but they’re actually working at another job to simultaneously collect benefits and an additional salary.

• The false claim: The injury in question either never occurred, or was knowingly misrepresented as a work-related injury to collect medical or wage benefits, or both. Employees staging an accident or intentionally injuring themselves to collect medical or wage benefits also falls into this category.

[Related: Florida CFO Jeff Atwater announces 6 arrests in Workers' Comp fraud scheme]

Policy-related fraud shares the same general adverse effects as claim-related fraud, but also artificially reduces the premium paid to insurance carriers and commission paid to agents. Policy-related fraud, falls into three basic categories:

• Under-reporting payroll: In this situation a policyholder inaccurately reports its work staff to the insurance company, often by paying employees off the books or presenting employees as sub-contractors or independent contractors rather than actual company employees.

• Misclassification of employees: A high-risk employee, such as a construction worker, is classified as a person with a lower relative risk like an office clerk. This misclassification is intended to result in a lower workers’ compensation premium for the employer/policyholder.

• Experience modification evasion: A company with a greater than average loss history attempts to re-emerge as a new company on paper to obtain a lower experience modification factor. However, the business actually is unchanged in its operations and still presents a greater than average risk.

How agents can help detect claim-related fraud

The same EMPLOYERS survey also found that one in five small businesses feels unprepared or unsure of its ability to identify workers’ compensation fraud. This provides an opportunity for agents to serve as both a trusted advisor to policyholder clients as well as a frontline of defense against fraud.

Although there are many warning signs of workers’ compensation claim-related fraud, experience shows that when two or more of the following factors are present in a claim, there is a greater chance it may be fraudulent. Agents can help protect their clients from claim-related fraud by helping them look out for the following red flags:

• Monday morning reports: The alleged injury occurs first thing on Monday morning, or the injury occurs late on Friday afternoon but is not reported until Monday.

• Suspicious providers: An employee’s medical providers or legal consultants have a history of handling suspicious claims, or the same doctors and lawyers are used by groups of claimants.

• Conflicting descriptions: The employee’s description of the accident conflicts with the medical history, the first report of injury, or other witness statements.

• Treatment is refused: The claimant refuses a diagnostic procedure to confirm the nature or extent of an injury.

• Claimant is hard to reach: The allegedly disabled claimant is hard to reach at home.

• Employment change: The reported accident occurred immediately before or after a strike, job termination or layoff at the end of a big project or at the conclusion of seasonal work.

• No witnesses: There are no witnesses to the accident and the employee’s own description does not logically support the cause of injury.

• History of claims: The claimant has a history of a number of suspicious or litigated claims.

• Late reporting: The employee delays reporting the claim without a reasonable explanation.

• Changes: The claimant has a history of frequently changing physicians, changing addresses and numerous past employment change

Policyholders suspecting potential claim-related fraud should be advised to reach out to their carrier’s fraud investigation unit immediately.

(Photo: Shutterstock/Lisa S.)

How agents can protect themselves

Agents are not immune to becoming victims of fraud. Occasionally, a business attempting policy-related fraud may accuse its agent of misinforming the managers or advising them to commit fraud. There are simple steps agents can take, however, to protect themselves and assist in these types of workers’ compensation fraud investigations.

First and foremost, agents should understand, be aware of and monitor for the common warning signs of policy-related fraud. They should work with carriers that offer proactive anti-fraud programs and maintain detailed records of their interactions with policyholders, including all e-mail correspondence. Original signatures should be obtained on all applications, and agents should verify the policyholder or contact person’s name on their driver’s license. By keeping this information on file, agents can help protect themselves against false accusations and help prosecutors in a criminal case, if necessary.

If agents ever suspect a policyholder is engaging in workers’ compensation policy-related fraud, they should immediately inform the carrier’s special investigation or fraud investigation unit.

Agents play an important role as a critical frontline of defense against both claim-related and policy-related workers’ compensation insurance fraud. They can best help their clients and the insurance industry by being aware of these different types of fraud and their common warning signs. Agents should never hesitate to report any suspicious activities to the carrier for further investigation.

Ranney Pageler is vice president of the Fraud Investigations Department at EMPLOYERS^®, America’s small business insurance specialist®, which offers workers’ compensation insurance and services through Employers Insurance Company of Nevada, Employers Compensation Insurance Company, Employers Preferred Insurance Company and Employers Assurance Company. Insurance is not offered in all jurisdictions. For more information, please contact [email protected] or visit www.employers.com. Copyright 2015. EMPLOYERS. All rights reserved.