February 29, 2012
Reduce Workers’ Compensation Insurance Fraud In A Weak Economy With Analytical Vigilance
Most workers' compensation claims are legitimate. But unfortunately, there are those who will be drawn to commit fraud. Insurers must remain vigilant, protect their honest customers, and use effective tools to fight against workers compensation insurance fraud in a weak economy.
In slow economic times, the economy contracts and the inevitable attrition and layoffs cause employment rolls to shrink. This may lead to fewer claims as there are fewer employees working and therefore fewer employees becoming injured. This decrease in claims may correspond to a decrease in Special Investigation Unit referrals or fraud investigations. However, insurers should be careful not to overreact to these changes in volume. The fraud problem may be worse than these numbers suggest. Here’s why.
Unemployment Plays A Big Part
Unemployment is a scary thing. Employees facing layoffs risk losing their paycheck and their other employer-sponsored benefits like health insurance, all at once. When faced with the prospect of a layoff, some employees may be incented to fake a workplace injury to file a workers compensation claim. This accomplishes two things simultaneously: it provides a continuous income stream of wage replacement benefits as well as coverage for medical treatment for the employee. This may become an attractive option for desperate individuals who might not otherwise turn to insurance fraud.
Furthermore, employees who have an active workers’ compensation claim may be more likely to malinger if there are limited job prospects in the market. Regardless of whether these claims were legitimate or not at the onset, the insurer faces an increased risk of fraud in this area.
It’s Not Just The Employees
In tough economic times, businesses need to trim expenses any way they can. Unfortunately, some business owners believe that misrepresenting their business to obtain lower workers compensation premiums is an option for reducing costs. This leaves the insurer over-exposed to risk while failing to collect adequate premium. And as insurers try to minimize their own expenses, it becomes less and less common to conduct onsite audits which can help mitigate this type of exposure.
Insurers also need to be on the lookout for vendors like medical providers who may be “enhancing” their billing practices in an attempt to increase their own revenue. Padding medical bills or billing for services not rendered are common ways that unscrupulous medical providers try to scam workers’ compensation insurers.
So, what can be done about workers’ compensation insurance fraud risk in a weak economy? Here are some tips:
- Don’t make imprudent decisions about your investment in your anti-fraud program. Insurers may look to save money in tough economic times by trimming Special Investigation Unit resources. But this is the time that those precious resources are most valuable. If cuts are to be made, don’t cut too deep.
- Leverage analytics to identify anomalies. Optimized business rules, predictive models, and other analytical approaches can help effectively identify anomalous claim activity indicative of fraudulent behavior. Use these tools to focus your resources where they are needed most.
- Trust but verify. The vast majority of insureds are thoughtful, law-abiding customers. But there are some who will try to take advantage of the system. Use text mining technology to scan claim notes for evidence of cash payments, improper use of contractors, or other evidence of potential premium fraud. Prioritize audits of these policies where policy language allows.
- Keep vendors on their toes. Audit billing records and work with your medical bill processing and/or pharmacy benefit management vendors to keep a watchful eye on billing patterns. Use analytics to spot abnormalities or providers who are billing inconsistently to their peer group.
Most claims are legitimate. But unfortunately, there are those who will be drawn to commit fraud. Insurers must remain vigilant, protect their honest customers, and use effective tools to fight against workers compensation insurance fraud in a weak economy. See how one insurer chose to address this issue with the help of advanced technology.