According to various sources, around 10% of all insurance claims involve fraud. Insurance companies generally pass along the cost of these fraud losses to policyholders in the form of higher premiums. Unfortunately, small businesses, which are generally less able to pay premium hikes, are particularly vulnerable to insurance fraud. To protect your company from losses and minimize the likelihood of increased premiums, learn how to identify insurance fraud.
Areas of concern
There are several forms of insurance fraud that could potentially affect your business:
Workers’ compensation. In these schemes, an employee exaggerates or fabricates an injury or illness to receive workers’ compensation benefits. For example, a worker could mischaracterize an injury from a minor accident as serious or claim that an existing, non-work-related condition was the result of an occupational injury.
Medical insurance. A perpetrator might add a fictitious employee to your company’s insurance plan or use a stolen or synthetic identity to enroll a nonexistent dependent.
Healthcare provider. Here, a healthcare provider submits claims for procedures or services that weren’t performed. A crooked provider might also bill for multiple procedures when only one was performed or bill for a more complex and expensive procedure when only a simple one was performed.
Premium diversion. This fraud occurs when an employer or insurance agent misuses premium payments intended to pay for employee policies. The perpetrator could use the funds for personal or business-related expenses.
Preventing workers’ comp scams
To help prevent false workers’ comp insurance claims, develop reporting processes that employees are required to follow. Staff members should provide detailed information about incidents and any medical treatment they received. Your insurance company can provide forms and suggest best practices to encourage employees to disclose relevant information related to their claims.
Also, regular audits of workers’ compensation claims may identify patterns of fraudulent activity and uncover long-running schemes. For example, if an employee often claims on-the-job injuries but is known to engage in physically demanding or dangerous activities outside the office, it may be appropriate to scrutinize those claims.
Other best practices
To reduce the risk of workers enrolling ineligible or fake participants in your medical insurance plan, put in place verification procedures. These might include background checks and required documentation such as Social Security and driver’s license numbers. Additionally, conduct regular audits of your employee benefits to reconcile those enrolled against your company’s payroll records and department headcount.
Pay close attention to the remittance of payments to your insurance providers. If there’s a problem regarding your employer-paid contributions, your insurance company will send a letter and call. To head off problems, proactively designate someone in your organization who isn’t involved in submitting or paying insurance premiums as the insurance company’s regular point of contact.
In addition, educate employees about how to spot suspicious billing practices and provide them with a confidential fraud hotline so they can report any irregular activities. And be sure to set an ethical tone. Make sure workers understand your expectations and policies related to the insurance coverage you provide — as well as the ramifications of committing fraud, such as termination and legal action.
Work with reputable carriers
As with all your company’s business relationships, only work with reputable insurance carriers. The cost of premiums alone shouldn’t be the sole criteria when choosing an insurer. Look for companies with robust fraud detection and prevention programs that can help you identify and address fraud, should it occur.