The True Costs Of Fraud
Although insurance fraud is sometimes called a “victimless” crime, it hurts a lot of people in many different ways. Honest workers with legitimate injuries often feel they are under suspicion by co-workers or managers just for using the workers’ comp system as it was intended. Fraud is also expensive. It raises businesses’ insurance premiums, can reduce productivity, and can even threaten a company’s survival. Other employees may be forced to pick up the slack of a malingering co-worker; jobs may have to go unfilled; pay raises or profit-sharing gains may suffer as revenue is lost. Insurers and law-enforcement agencies spend large sums to detect and fight baud. Ultimately, the costs of workers’ comp fraud are passed on through increases in insurance premiums paid by the companies that must buy the coverage. The resuit is a huge if not readily apparent-economic burden on employers.
For the insurance industry, the cost of fraud in workers’ comp claims is about $5 billion a year, according to estimates by the National Insurance Crime Bureau (NICB) in Palos Hills, Ill., an industry-financed anti-fraud organization, and by the Insurance Information Institute in New York City, a communications organization sponsored by the property and casualty insurance industry.
In fact, workers’ comp in recent years has been the largest source of fraud within the property/casualty insurance sector, accounting for more than onethird of property/casualty fraud losses, according to a 1996 analysis by Conning Insurance Research and Publications in Hartford. (Workers’ comp is classified as property/casualty insurance–not health insurance–because it provides commercial liability coverage.) ‘Fraudulent claims in workers’ compensation easily outstrip those in other lines of [the property/casualty] business,” says the Conning report.
The FBI estimates there is fraud in 10 percent of all insurance claims; the Conning study concludes that the fraud level in workers’ comp claims is nearly 25 percent.
Why is workers’ comp fraud so pervasive? The short answer is because it’s easy to commit and hard to detect. Workers’ comp is a unique and complex system that can vary significantly from state to state. There’s no centralized reporting or collection of data, so it’s impossible to monitor the U.S. system as a whole, let alone the individuals who may swindle it.
Also, only 32 of the 50 states have laws that define insurance fraud as a felony. That leaves more than one-third of the states without workers’ comp fraud laws or with statutes that are either inadequate or ineffective for prosecuting workers’ comp fraud, according to the Insurance Information Institute.
“I thought welfare was easy to rip off, but nothing is as easy as workers’ comp,” says Ranney Pageler, Fremont Compensation’s vice president of fraud investigations, who helped put Cook-DuPage Transportation’s problem driver behind bars. “It’s a complicated system.”