Workers' Compensation Fraud and The Small Employer

What is workers’ compensation insurance and how does it protect citizens?

Workers’ compensation insurance is a mandatory protection maintained and paid for by employers. Insurance benefits are paid to compensate employees hurt on the job. Each state administers its own program.

In Connecticut, the Workers’ Compensation Commission oversees the laws and procedures administering workers’ compensation. The Connecticut Insurance Commissioner regulates the insurance companies underwriting workers’ compensation insurance.

Workers’ compensation insurance has several purposes: (1) provide reimbursement of lost wages, (2) pay for health and rehabilitation services, and, (3) compensate victims or their families for dismemberment or death suffered on the job. The key requirement for workers’ compensation insurance to take effect is that the injury or occupational disease must be suffered on the job.

Workers’ compensation fraud is a growing problem, which adds billions to the cost of everything we buy. The National Insurance Crime Bureau (NICB), which investigates and tracks insurance fraud nationally, estimates that workers’ compensation fraud costs business, and ultimately all of us, $5 billion per year. One of every 10 dollars spent for premiums to cover the real injuries suffered in the workplace is estimated as lost due to fraud.

The cost of workers’ compensation insurance is a significant expense for small businesses. According to Insure.com, a leading internet insurance reference, a source at one workers’ compensation insurer, estimates that a small employer with 10 to 20 employees pays on average between $7,000 and $10,000 per year for coverage, depending on the risk classification of the jobs involved and claim experience. Since most workers’ compensation insurance premiums are experience rated, i.e., the insurance company adjusts the premium based upon claim costs, at least part of the cost of phony claims is passed to employers in the form of higher premiums.

The most frequent type of workers’ compensation fraud is the faked workplace injury. This may be in the form of a totally phony injury, a real injury suffered off the job, or a real injury whose extent is prolonged to avoid returning to work.

The scope of workers’ compensation fraud is not limited to fake workplace injuries. Employers commit fraud when they lie to the insurer about the number of employees covered, past injury claims or the type of work what is really performed, to obtain lower premium rates.

Workers compensation fraud schemes also frequently involve medical provider fraud. Medical providers commit insurance fraud when they falsely certify disability claims or bill workers’ compensation insurers for medical services not actually provided.

The small business owner can take some simple, but prudent, steps to combat false or fraudulent workers’ compensation claims. The Coalition Against Insurance Fraud, a national organization combating insurance fraud, recommends employers perform the following steps.

1. Examine an employment candidate’s work history, background and references carefully. Some workers’ compensation fraudsters are professional or serial perpetrators, with a history of false or exaggerated workers compensation injury claims. Look for, question and verify gaps in employment or frequent job changes.
2. Publish your workers compensation policies and educate your employees about the cost and impact of workers compensation insurance on the business. Employees need to understand that their employer, not the big insurance company, ultimately pays the costs of injuries.
3. Educate managers and supervisors on accident procedures and claim policies.
4. Take complaints about working conditions seriously, and do what you can to address them. Disgruntled employees are a major source of workers’ compensation fraud.
5. Take advantage of workplace safety training and awareness programs offered by your insurance carrier.
6. Implement safety management and loss control programs. Perform periodic reviews of the injury risks involved in workplace activities. Correct safety problems immediately.
7. Alert your insurance company’s special investigations unit (SIU) to claims you suspect.
8. Display your insurer’s fraud hotline number.

The Connecticut Insurance Department Fraud Unit and the Connecticut Worker’s Compensation Commission can assist you to resolve suspected fraud.

Connecticut Insurance Department 1-860-297-3933  e-mail: ctinsdept.fraudunit@ct.gov