What Every Small Business Should Know About Workers' Comp Fraud

HPM Work Comp InsuranceRunning a business is a challenge  You need to constantly react to not only the needs of your clients, but also the needs of your staff.  This constant pull may have you take your eye off a potentially fraudulent situation with an employee because you either do not have time to think about it or you can not believe a member of your team would commit fraud.  However, it is not uncommon that an employee may not consider getting a little money from workers' compensation an actual crime of insurance fraud.  The worker may think that because a payment to them is not coming directly out company of funds - what harm does it do?

According to a white paper published by Travelers called Managing Workers' Compensation Fraud, the Insurance Information Institute estimates that all property/casualty insurance fraud costs insurers $30 billion annually.  Of this, workers' compensation fraud accounts for approximately 25% or $7.2 billion a year, according to the National Insurance Crime Bureau (NCIB).  This would rank workers' comp fraud among the Fortune 500 companies if it were a legitimate business.  This massive expense is not just carried by the insurance companies themselves, but rather everyone including the insurance companies, employers, employees, shareholders and society.

Of course fraud on this scale is not done solely by employees as engagement in this illegal activity can be as high as a massive crime ring; however, employee claimant fraud accounts for approximately 20% of all workers' compensation claims paid.  This rate of fraud definitely makes it more expensive for everyone who has a workers' compensation policy and if experienced in your organization, it will most likely result in a higher premium for several years. 

Obviously with 20% of all work comp claims going to fraud, 80% are legitimate so do not ever delay in filing a claim promptly because you believe it may be fraudulent.  Leave that up to the insurance company to decide.  However, it never hurts to keep your eyes wide open and bring any red flags to the attention of the adjuster handling the claim.  It just makes good business sense.  

Following below please find some red flags of workers' compensation fraud as highlighted in a recent issue of Insurance Business America.

  1. Monday morning reports: The alleged injury occurs first thing on Monday morning or late Friday afternoon, but not reported until Monday.
  2. Employment change: The reported accident occurs immediately before or after a job termination or big project.
  3. No witnesses: There are not any witnesses to incident.
  4. Conflicting description: Employee's description of accident does not logically support the cause of the injury or conflicts with First Report of Injury, or changes over time.
  5. Late reporting: The employee delays reporting the claim without a reasonable explanation.

Of course accidents can happen Monday morning and without witnesses, so again this is not to imply that if an employee has one or more of these circumstances that it is fraud.  That said you would not want to have any regrets later about an increase in premium due to the payment of a claim that never should have been paid in the first place.


This material is for informational purposes only.  All statements herein are subject to the provisions, exclusions and conditions of the applicable policy.  For an actual description of all coverages, terms and conditions, refer to the actual insurance policy.  Coverage is subject to individuals meeting underwriting qualifications.

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