Overall
- Conservatively, fraud steals $80 billion a year across all lines of insurance. (Coalition Against Insurance Fraud estimate).
- Fraud comprises about 10 percent of property-casualty insurance losses and loss adjustment expenses each year; and
- Property-casualty fraud thus equals about $34 billion each year. (Insurance Information Institute, September 2017)
Fraud costs for insurers
- Fraud accounts for 5-10 percent of claims costs for U.S. and Canadian insurers. Nearly one-third of insurers (32 percent) say fraud was as high as 20 percent of claims costs;
- 57 percent of insurers predict an increase in personal-property fraud by policyholders. Around 58 percent say the same for personal auto insurance, and 69 percent expect a rise in workers-compensation scams;
- 61 percent predict an increase in auto-insurance fraud by organized rings, and 55 percent predict an increase workers-compensation scamming;
- About 35 percent say fraud costs their companies 5-10 percent of claim volume. More than 30 percent say fraud losses cost 10-20 percent of claim volume;
- Detecting fraud before claims are paid, and upgrading analytics, were mentioned most often as the insurers’ main fraud-fighting priorities; and
- One-third of insurers don’t feel adequately protected against fraud. (FICO, August 2013)
Workers compensation
- *More than one in 10 small-business owners are concerned an employee will fake an injury or illness to steal workers-compensation benefits;
*Nearly one in four owners also installed surveillance cameras to monitor employees on the job;
*One in five owners feel unsure how to identify workers-compensation scams; and
*More than half agree these are fraud flags: Employee has a history of claims (58 percent); no witnesses to the incident (52 percent); employee didn’t report the injury or illness in a timely manner (52 percent); and the injury coincides with a change in employment status (51 percent).
(Employers Holdings, July 2015)
Misclassification
Some businesses illegally try to avoid paying full state-required workers compensation premiums by misclassifying employees as independent contractors. Such schemes are spreading.
The number of employees and size of payroll are two important factors that workers-compensation insurers use to gauge a firm’s premiums. Typically such workers are paid off the books to hide the evidence.
Another scheme involves misclassifying employees in high-risk jobs as holding lower-risk jobs. A dishonest roofing firm, for example, might tell its insurer that its high-risk roofers are lower-risk sales staff or clerks.
Workers also are denied state-required workers compensation benefits.
And misclassification avoids taxes, wages and other expenses. Overall, this crime gives employers an unfair advantage over competitors.
The Obama Administration expanded the definition of “employee” under the Fair Labor Standards Act in July 2015 to crack down on employers that misclassify workers as independent contractors.
10-20 percent of businesses misclassify at least one worker as an independent contractor.
(Economic Policy Institute, June 2015)
25 states have signed Memorandums of Understanding with the U.S. Department of Labor to combat misclassification. (U.S. Department of Labor, August 2015)
