Why Should You Care About Premium Fraud?

Premium fraud perpetrators pay 20 to 30 percent less in labor costs than honest employers.

Premium fraud perpetrators pay 20 to 30 percent less in labor costs than honest employers.

When you renew your workers’ comp policy, you do it by the book. You report how many employees you have and what types of jobs they do. Your insurance carrier, in turn, issues a fair quote that accurately reflects your business operations.

Unfortunately, some employers are not as honest as you. Some of your competitors may be misrepresenting their payroll and paying less premiums than they actually owe. The scheme is called premium fraud. Employers who commit premium fraud gain an unfair advantage over their honest counterparts.

An investigation conducted in North Carolina found that premium fraud perpetrators pay 20 to 30 percent less in labor costs than honest employers. Those savings come in handy. For example, they can use the money to underbid you on contracts.

Premium fraud takes many forms, but two are most common.

Some employers misrepresent workers as subcontractors when they are actually employees or contract labor. Truly independent subcontractors do not have to be covered under the employer’s workers’ compensation policy. This type of fraud is common in the construction industry.

Another common premium fraud scheme involves shadow companies. In this type of scheme, employers set up another company that is uninsured. The second company is typically undisclosed to the workers’ compensation carrier or falsely represented as a subcontractor. As a result, the insured employer reports less payroll than it actually has, and thus pays less premium than it actually owes.

Premium fraud is just one type of fraud common in the workers’ comp system.

Health care providers have accounted for some of the system’s most high-profile cases. The cases often involve health care providers who charge for services they do not render or overbill for the time taken to treat claimants.

Claimants can commit fraud, too. In fact, claimant fraud is the most common type of fraud Texas Mutual investigates. Claimant fraud happens when injured workers knowingly collect workers’ compensation benefits they are not entitled to.

Many fraud investigations start when an employer reports suspicious activity. Your actions in reporting fraud are protected by the Texas Insurance Code. If you suspect another employer is committing premium fraud, report your concerns to your workers’ comp carrier or to the Texas Department of Insurance fraud unit. Together, we can win the fight against fraud one case at a time.


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