Spring 2007

Your Role in Fighting Premium Fraud
By Grace Turner • Special Investigations Supervisor

*Based on 2006 Texas Mutual^® fraud cases.

Texas Mutual Insurance Company takes workers’ compensation fraud seriously. Last year, we secured 28 indictments and 18 convictions or civil rulings. We also recovered over $1 million through criminal prosecution. What may be surprising to some is that 82 percent of the fraud we identified was premium fraud.

Premium fraud happens when employers knowingly misrepresent payroll, class codes or other information to artificially lower their premiums. Agents are in a good position to help us identify premium fraud because they may spot inconsistencies between lines of insurance or have knowledge about other operations.

But why should you help? After all, if your clients misrepresent information, it’s their business, right? Not necessarily.

Employers who commit premium fraud gain an unfair advantage over their honest competitors. By helping us identify premium fraud, you help ensure a level playing field for all employers and contribute to a stable workers’ comp system in Texas. Follow these tips to help us win the fight against premium fraud.

Learn the basics
Most premium fraud cases fall into one of two categories. The first involves employers who misrepresent the status of employees as independent subcontractors. An employer’s workers’ comp coverage does not extend to legitimate independent subcontractors, and sometimes, employers mischaracterize their general labor as independent contractors. The second category involves employers who “hide” employees and report a smaller payroll to the insurance carrier by creating so-called shadow companies, which often share common management, locations and goals.

Ask questions
You can stop premium fraud scams before they start by simply asking questions. Review applications carefully, watching for appropriate class codes. Identify who is performing the labor, and ask questions about independent subcontractor relationships that do not make sense. Compare what the client represents on their workers’ comp application with what is on their applications for other lines of insurance. Explore the relationships between companies that do not elect to be insured. Remember that direction and control, not ownership, determine risk exposure.

Practice the three Ds: document, document, document
Documentation is to premium fraud as location is to real estate. It is everything. If a premium fraud case goes to trial, your files will be closely scrutinized. If you repeatedly asked the client whether the class codes on the application were correct or the subcontractors on the job were truly independent, write it down.

Work with us
Report suspected premium fraud, and work with our special investigations department when we ask for your help. Visit the Fighting Fraud section for more information on how you can help us stamp out fraud. Call our anonymous FraudStoppers_SM line at (800) 488-4488 to report suspected fraud.

MUTUAL INTERESTS - Spring 2007
Your Role in Fighting Premium Fraud
Red Flags for Premium Fraud
Subcontractors Leverage Purchasing Power
Purchasing Group News
Ken's Corner
Learn How to Increase Your Sales
Earn 3.5 CE Credits

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