Workers’ Compensation Fraud: The Insurance Producer’s Role

There are essentially two types of workers’ compensation fraud – premium fraud and claimant fraud – and insurance producers can play a role in the discovery and resolution of both, according to one investigator who has brought some 800 cases of workers’ comp fraud to prosecution in his 23 years of tracking them.

Both types are criminal acts, says Ranney Pageler, a former law enforcement officer and now a vice president in the fraud investigation department at the workers’ comp insurance company, EMPLOYERS. Pageler, who’s based in Austin, Texas, says he has “put more people in jail working for an insurance carrier than I ever did as a cop.”

Most of his staff are ex-law enforcement officers or ex-criminal prosecutors and they “work fraud from the standpoint of the criminal prosecution of fraud,” Pageler says,

Insurance producers may be more often exposed to – and have more at risk with – premium fraud, in which the policyholder misrepresents payroll, misclassifies employees or attempts to falsely change their experience modification in order to lower premiums.

But agents should also take notice of claimant fraud – where an employee or a provider attempts to game the system in order to receive more benefits than are deserved – and learn how to help their customers recover from a fraudulent act, Pageler says.

Premium Fraud

When a potential premium fraud is uncovered, often the policyholder alleges the producer told him to change the application or that the producer amended it, basically pointing the finger at the agent, according to Pageler.

If premium fraud by a policyholder is suspected, “the first thing that’s going to happen is law enforcement will be coming to that [policyholder’s] producer with either subpoenas or search warrants, and they’ll be looking for a number of items that are used as evidence in a criminal case,” Pageler says. “That could be applications for insurance, supplemental applications, activity logs, telephone logs, correspondence, email, documents signed by the responsible person from the actual business, statements made to the business by representatives of that business, and of course, copies of checks that were used for payments.”

Pageler says producers should take the time to understand the business that they’re writing, including identifying who the principals are, getting copies of driver’s licenses – steps “that will make it apparent that you dealt directly with this policyholder.”

When a policyholder claims their agent told them to falsify the application, law enforcement and the carrier will take a “real hard look at the rest of the agent’s book. They want to see if that is a trend or a pattern within that book of business by that agent, or is it a one-off,” Pageler says.

If no other problems are discovered “it tends to show that the policyholder is exaggerating the point or trying to find someone else to blame,” Pageler says.

However, he adds that his team has “found cases in our own prosecutions where, when we’ve gone back in and looked at the producer’s book, we find other, similar misrepresentations on four or five policies that we can document. That doesn’t bode well for the producer.”

Still, for 99.99 percent of producers he sees, the message he conveys is about safeguarding themselves. You “want to make sure that it’s obvious that it is the policyholder that’s the problem, not the producer,” Pageler says.

The bottom line is that premium fraud not only creates an unfair advantage in the marketplace for the policyholder who misrepresents their business in order to reduce workers’ comp costs, it also artificially reduces the premium paid to the carrier and trims the amount of commission paid to the agent.

Plus, he says, it may place additional legal burdens on the producer “if it is discovered and law enforcement does get involved.”

Red flags that may indicate premium fraud include:

• The policyholder uses a mail drop or post office box for the business address;

Claimant Fraud

Claimant fraud can be totally fraudulent or partially fraudulent. In either case, the producer’s role “is to help that policyholder who’s using the fraud word find the relief that they need to handle that fraudulent claim,” Pageler says.

When a policyholder suspects workers’ comp fraud, he says, they need to identify the witnesses, identify the misstatements, gather as much information as they can and get in touch with the carrier. It’s important to contact not only the carrier’s claims department but the special investigations unit or fraud investigation department, too.

Every state allows the retroactive correction of the experience rating, Pageler says.

So, if there is a criminal conviction in a claimant fraud case, the producer can help their policyholder by getting that fraudulent claim or the fraudulent portion of the claim off the client’s experience rating.

In the case of suspected claimant fraud timely reporting of the claim is essential.

“If we don’t know about a claim, we can’t investigate it. We can’t evaluate it. There’s nothing we can do about that,” he says.

And, he says, when alerting the carrier’s claims department, be sure to ask how to contact the special investigation unit or fraud unit. Contact both.

“It is really telling,” Pageler says, “when you call a claims unit and you ask for the number for their special investigation unit and they don’t know what it is. That means they’re probably not doing much in the way of fraud investigations or fraud prevention. [You] should be able to get to both.”

Pageler says sometimes policyholders actually call his special investigation unit first, before contacting the claims department.

“We’ll go ahead and do our initial checks on background, that type of thing, see if we have a prior history of claims, see what’s going on, and notify claims that if you receive a claim for this, we’re already involved,” he says. “Sometimes the claim never comes in, but when it does, we’re forewarned.”