Is Somebody Picking Your Pocket?

Kirk Hansen

Is there someone out there right now trying to pick your pocket? Are one or more of your employees falsely claiming an injury or disability? Chances are that if you haven't already been a victim, sooner or later, you will be.

Committing insurance fraud is one way to make easy money. With just a few lies and a little acting, perpetrators can have money in the bank.

Fraud takes on many forms, including staging accidents, padding or inflating claims, or submitting claims for injuries or damage that never occurred.

Various unscientific estimates show that insurance fraud costs the nation several billion dollars per year. The nature of fraud, however, makes it impossible to accurately quantify. While we can determine how many people are convicted of insurance fraud, we don't know how many get away with it.

However, insurance fraud can cost employers through expensive claims if their insurance program includes high self-insured retentions, or higher premiums due to the claims experience.

In 2000, more than 90 percent of the cases prosecuted by the Insurance Fraud Bureau of Massachusetts involved automobile and workers' compensation fraud. Waste haulers are particularly susceptible to these types of fraud.

Automobile Fraud

Phony accident scams are a problem in every major city in the nation. The crooks involved with insurance fraud may include unscrupulous doctors and corrupt lawyers. They range from cheats to organized criminals. Although the motivation to commit insurance fraud is always monetary, the amount the offenders get away with varies greatly, from a few extra dollars on an insurance claim, to thousands of dollars grifted by organized fraud rings.

There has been a proliferation of dishonest medical clinics, particularly in large metropolitan areas, that specialize in treating bogus injuries from automobile accidents. Some of these clinics have links to organized crime.

The clinics use phony billings to generate income from insurance companies. To get “patients,” they pay cash to “runners” who provide the patients used to generate phony medical treatment costs.

The “runners” reportedly are paid about $1,500 to $2,000 per claimant they bring in. The claimants are reportedly paid only $200 to $500. Meantime, the phony medical clinics generate charges of $25,000 to $50,000, claiming that they have performed batteries of tests and treatments, most of which are non-existent.

Occasionally, insurance fraud rings set up car crashes. In this scenario, the people who submit the injury claims or go to the hospital for treatment are not even the ones who were in the collision. The people in the vehicles are called “mules,” and the people reporting for treatment usually are individuals with pre-existing back trouble.

Combating Fraud

The good news is waste haulers can protect their companies from such fraud. Drivers need to be trained to immediately report all accidents to dispatch or their supervisor. Because many motorists leave an accident scene when they think no assistance is needed, train drivers to get the names and phone numbers of all witnesses before they drive off.

Drivers also should be told to never apologize or admit fault at a traffic accident.

Send a supervisor equipped with a tape measure to take measurements, pre-printed forms for taking witness statements and a camera for taking photographs to every accident scene. Not only should the supervisor take photos of the vehicles and the scene, he also should take photos of every occupant in the other vehicle. This may help to defend against the “mules” participating in phony accidents.

Consider keeping a disposable millimeter camera in the glove compartment of each truck. Unless instructed otherwise by the police, the driver should not move the truck until the investigation is completed and the supervisor gives an okay.

Contact the company insurer immediately, preferably by phoning or faxing the information. Give the insurer a complete copy of the investigation along with the original photographs.

Tell the insurer whether the accident was suspicious. The earlier an insurance company gets involved with a case, the better the waste hauler's chances are of proving fraud.

Workers' Compensation Fraud

Do you have an employee who seems to get injured every year right before the start of deer hunting season? Too many people view workers' compensation as part of a welfare system from which withdrawals can be made by submitting invalid or inflated claims.

Some employees might not even think that the business is affected by workers' compensation claims. “It's just the insurance company,” they think. “They [company] can afford it.”

Workers' compensation fraud usually involves just one person, although the employee may receive assistance from unscrupulous attorneys and medical clinics. And workers' compensation fraud can hit in many forms:

Here's how to protect against workers' compensation fraud.

Hire Well: Thoroughly check the references and backgrounds of candidates. Do not, however, ask applicants whether they have ever had a workers' compensation claim, as it probably would be considered violating the Americans with Disabilities Act.

Report Injuries Immediately: Establish a policy requiring this and subject the employee to disciplinary action for making a late report.

Develop a form to use when taking the employee's statement as to how the accident happened. Individuals who submit fraudulent claims tend to be inconsistent when telling how the injuries occurred. Therefore, it is best to document the accident as early as possible. Employees also tend to be the most honest and candid immediately after an injury.

Remember, many workers' compensation claims start off as honest injuries, but can grow “sour” after time and with attorney involvement.

Document communications with the employee. The date, time and substance of all conversations should be recorded in case the company's owners or employee supervisors are subpoenaed to testify months or even years later.

Document Exit Interviews with Terminated Employees: Develop a form for the interview and include a question that asks whether the employee is injured in any way. The employee should sign and date the form, which states the employee was not injured when he left the company.

Send Injured Employees to a Contract Physician (when state law permits): This doctor should be well-acquainted with company operations. Where state law does not permit this, employers can at least encourage employees to get medical treatment from their medical provider.

Accompany the Employee to the Initial Treatment: This will ensure that the doctor is aware of the employee's job description and whether any light duty might be available. The supervisor's presence also will prevent the employee from exaggerating his job description and, for example, telling the doctor that he has to lift 1,000-pound containers of trash 1,000 times per day.

Keep the Claim on Track: Occasionally, an employee is injured on a Friday but says that he doesn't need medical treatment. Over the weekend, however, his condition might worsen and he might go to his family doctor. This is how claims get off track and employees end up being referred to specialists who aren't familiar with the waste industry. To get the claim back on track the following Monday, have the employee checked by the company doctor, even if it appears to be duplicate treatment.

Work With Your Provider

As with automobile claims, it is important to immediately report all claims to the insurance company. It is essential to act as partners with the company workers' compensation carrier and medical provider.

The medical clinic might want to refer the employee to a specialist with whom you are not familiar. Although the medical clinic's doctor might say the specialist is good, consider contacting your company's insurance company to verify the name of a quality, conservative specialist. Companies also can arrange for the medical clinic to make all orthopedic referrals to a specific doctor.

Wherever state law permits, ask the insurance company to send the weekly disability checks to management. Rather than mail the check to the employee, ask the worker to come into the office to pick up the check. This is an excellent opportunity for managers to gauge the employee's progress.

If there's grease underneath the employee's fingernails, this might indicate that he's been working on his car while he's supposedly disabled. Look out through the window and watch the employee while he goes to leave in his car. Did he enter the office with a limp, but he seems fine walking in the parking lot?

If employers suspect fraud, they should call their insurer to inform them. For example, if the employee never seems to be home to take calls, tell the insurance company. The insurer can arrange for surveillance that might show that the employee is performing activities beyond his supposed physical restrictions, or even working a second job.

Employees should schedule all doctor and therapy appointments during non-work hours or late in the afternoon. Consider having injured employees punch out on the time clock whenever they leave for appointments. If the employee says physical therapy is only available during your regular work hours, call the clinic to confirm this. Chances are, it may not be true.

The best weapon against workers' compensation fraud and malingering is to set up a light duty program. When malingering employees see that employers are serious about getting them back to some sort of duty, chances are that they will ask to go back to their regular jobs. The company's medical clinic needs to know that employers support returning injured employees to light duty.

Don't have any light duty? How about cleaning up the shop, telephone sales, inventory, cutting the grass, painting containers, washing trucks, dispatching, route auditing, or working as a security guard? This might even be the time to get someone to repaint the office.

Anti-Fraud Efforts

The insurance fraud problem does not seem to be improving, despite the fact that the insurance industry spends $650 million annually trying to detect and deter fraud. This figure does not include the money spent on undetected fraudulent claims.

The industry has made this issue a priority over the past 10 years. It has helped established state administered fraud bureaus in 34 states and state administered workers' compensation fraud units in 19 states. This year, legislation has been proposed to establish fraud bureaus in Indiana and Minnesota. Also, the National Insurance Crime Bureau (NICB), Palos Hills, Ill., is helping to address insurance fraud.

In recent years, civil and criminal penalties for insurance fraud have increased. Almost every state now specifically defines insurance fraud as a felony, rather than a misdemeanor. Even with these laws, however, there are other reasons why many fraudulent claims slip through the cracks.

For example, insurance fraud competes with other crimes for the prosecutors' attention. Some prosecutors use a high dollar damage threshold before they will take on a case. Unfortunately, some prosecutors lack the experience, knowledge or interest to aggressively prosecute insurance fraud cases.

The Unfair Claim Settlement Practices Regulations and Acts also include time restrictions on payment. An insurance company might have to pay a large fine if it fails to pay a claim within the regulation's time limits.

Some in the industry have formed special investigation units (SIUs). Insurers with SIUs service about 71 percent of the insurance market, up from 50 percent 19 years ago. Insurance companies that do not have SIUs are increasing their use of private investigators.

More complex cases involving large-scale criminal operations are often turned over to the NICB, which is a not-for-profit organization that fights insurance fraud through information analysis, forecasting, criminal investigation support, training and public awareness.

Fraud control is embedded in many aspects of an insurance company's operation. Every claims adjuster and underwriter is indirectly part of each company's fraud control program.

At least four out of five insurers use fraud awareness training, manual red flags and external data searches to detect fraudulent claims. Insurance companies use sophisticated software technology such as on-line databases and employ data mining to combat fraud. Software is used to uncover repetitions and anomalies that suggest fraudulent activities or entities.

Other recommendations have been made to limit insurance fraud. For example one Florida grand jury report in 2000 suggested banning the release of accident reports, except to victims, to avoid “runners” collecting the reports to solicit victims for health and auto repair services.

In addition, the Alliance of American Insurers has proposed barring fraudulent healthcare providers that abuse the system. Current procedures to revoke the licenses of fraudulent medical practitioners rarely result in license suspension, even after long procedural delays.

There are opponents to anti-fraud legislation. For example, in some states, legislators traditionally supported by the trial bar have sought to water-down anti-fraud legislation.

Studies consistently show that a significant portion of the public thinks it is acceptable to defraud insurance companies, so this crime is perpetuated by society's attitude toward it.

But if insurance fraud is tolerated, you and your business will pay for it.

Kirk Hansen is director of claims for the Alliance of American Insurers, Downers Grove, Ill.

Is It OK to Cheat?

A 1999 survey of public attitudes toward insurance fraud conducted by the Insurance Research Council (IRC), Malvern, Pa., showed that:

The IRC also found that the acceptance of insurance fraud was higher among younger people. Most of the survey respondents felt that workers' compensation fraud was increasing.

An IRC 2000 survey showed that 35 percent of Americans agreed that padding a claim to make up for the deductible was acceptable (increasing from 22 percent in a 1993 survey). In the same survey, 24 percent of the respondents said it was okay to increase an insurance claim by a small amount to make up for the insurance premiums paid when no claims were made. That figure increased from 19 percent in 1993.— Kirk Hansen