Workers' Compensation Premium Fraud

Topics: Workers' Compensation Loss Control

What is Premium Fraud?

Premium fraud refers to a business owner's deliberate attempt to lower their insurance premium by misclassifying employees, such as reporting an employee who works in the field as an office worker –  or underreporting the number of employees on the payroll. Premium fraud also occurs when an employer misclassifies a worker who is an employee as an independent contractor. Misrepresenting an employer's claims history is also considered premium fraud. 

The Dangers of Underreporting Payroll Through Premium Fraud


Employers looking to save a few dollars in workers’ compensation premiums by underreporting their payroll or misclassifying employees are not only hurting other insureds, but they’re putting their own company at major risk, says the head of a multinational insurer’s fraud division.

Don Houser, national director of AmTrust North America’s special investigator’s unit, said it’s part of an insurer’s role to protect against “premium fraud,” which ultimately means higher premiums for legitimate employers and could lead to felony counts against the business owner.

How common is workers’ comp fraud?

“Workers’ compensation fraud is a huge and growing issue across the country; so big that if the dollar value associated with insurance fraud were a business it would be in the Fortune 500,” Houser said. “A business owner might not realize the impact his dishonesty has on other insureds or his own employees, let alone the severity of the criminal nature of his actions. But it can be devastating.”

AmTrust maintains a fraud prevention hotline, a fully staffed fraud unit, and uses several proprietary methods for identifying and investigating fraudulent activity, all in an effort to protect its customers.

Premium scams can range from misclassifying a few workers into safer jobs than what they actually perform, falsely reporting employees as independent contractors, or setting up dummy companies to “hide” employees to keep payroll, and in turn, workers’ compensation premiums artificially low.

“We know this type of fraud is common, and we investigate claims of this nature on a daily basis,” Houser said. “The dollar value of this dishonest behavior by business owners can quickly escalate into the hundreds of thousands of dollars if undetected.”

Fraud’s ripple effect

The impact of workers’ compensation insurance fraud affects not only other policyholders when insurance companies have to raise premiums, but the ripple effect reaches consumers, too, who have to pay higher prices for goods and services so small businesses can pay their insurance premiums.

Further, businesses saddled with higher premiums may have to lay off workers, withhold pay increases or even put workers at risk who do suffer a legitimate workplace injury when they’re not properly insured to cover it.

For more on workers’ compensation fraud, please call the AmTrust Workers’ Compensation Fraud Prevention Hotline at 1.855.716.2529.

This material is for informational purposes only and is not legal or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose. Readers seeking resolution of specific questions should consult their business and/or legal advisors. Coverages may vary by location. Contact your local RSM for more information.

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