Magazine article Risk Management

Workers' Compensation Fraud

Magazine article Risk Management

Workers' Compensation Fraud

Article excerpt

Alanna Anthony

Workers' compensation fraud is a huge problem. Corporations know it, insurance companies know it. But despite growing awareness and an ongoing effort to crack down on perpetrators, the incidence of fraud continues to increase. Industry estimates put the cost of fraudulent claims in the United States at about $120 billion a year.

And it's not just the obvious suspects and repeat offenders who are doing the damage; employees of the month, police chiefs and priests have been convicted of feigning injuries and bilking insurance companies out of tens of thousands of dollars. Today, 90 percent of employers say they believe their workers' compensation programs have been abused.

Although the problem may seem unmanageable, it is indeed possible to combat it. Doing so requires a specific plan based on an understanding of how individuals get away with fraud and where weak points in the system exist.

Like any crime, insurance fraud (which includes both fabrication and - more commonly - exaggeration) centers on opportunity. Although sophisticated scams do exist, the vast majority of cases are rather mundane and can be uncovered by simple due diligence. Determining which cases should be investigated requires a combination of instinct and training.

It is essential to be able to recognize the signs of fraud to know if, when and how to proceed with claims investigation and mitigation. Combating fraud isn't just about catching cheats, it's about creating deterrents and staying within the limits of the law while investigating and challenging suspicious claims. An effective program must involve a systematic approach that handles each incident, claim and investigation consistently with established antifraud practices.

Document All Incidents

A successful challenge to a potentially bogus or exaggerated claim should begin the instant an incident is reported. Companies should, as a practice, take pictures of the scene and interview eyewitnesses or others who were in the area when the accident was said to have taken place. Questions to ask include: Did anyone see the accident? Was the ground wet? Was the area well-lit? These kinds of questions can be answered easily in an immediate investigation, but will be difficult to address - and even more difficult to substantiate - months or years later.

Risk managers often fail to investigate an incident in advance of receiving a claim. Many conduct minimal follow-up when an incident occurs and may be ill-prepared to challenge or reject a claim successfully. Careful incident reporting serves two purposes: first, it can help document inconsistencies and provide clues that could warrant a more detailed investigation; second, it creates a strong deterrent by demonstrating that the company takes all claims seriously. A variety of commercial incident-management computer programs are available to help companies standardize documentation, track claims and analyze trends.

An important part of the documentation process is obtaining a statement from the person reporting the injury. It's important, however, to document more than just how and where the injury occurred. Asking the person to define the activities he or she can comfortably engage in and those that cause pain can make or break a case later on.

Watch for Warning Signs

Often, there are tip-offs that a claimant may be lying. An obvious sign is a history of claims - particularly those occurring around the same time every year. Any discernible pattern is worth further investigation. Some workers claim an injury simply to take time off. Another red flag is a claim that's submitted a week or two before the claimant's seasonal position ends or the facility is scheduled to close.

Any claimant who appears evasive or elusive should be evaluated carefully. People who don't answer their phone, use a post office box to receive mail or list a friend or relative's house as their residence - or the address their checks are to be sent to - may be aware that companies can order surveillance. …

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