Working in the construction industry, insurance claims are bound to happen––but they’re not without risks for the employer and insurer. According to the Coalition Against Insurance Fraud, insurance fraud costs the United States $308.6 billion every year, impacting roughly 10-20% of claims. So, what does fraud look like and how can construction pros protect themselves against it? We recently sat down with Tyler Abbott, Claims Trainer at Builders Mutual, to get insight from our field’s front lines.
Understanding How Insurance Fraud Happens
Ever since insurance has been offered, fraud has been prevalent. And yet still, it’s on the rise, with 2/3rds of insurers reporting an increase over the last few years. Insurance professionals put fraud into two categories: hard fraud and soft fraud, with the latter being the most common. The difference between the two can be explained as follows:
Hard fraud: Incidents that require some sort of pre-meditation, like setting your car on fire to get a payout when you’re behind on payments.
Soft fraud: Situations where otherwise earnest policyholders might bend the truth for financial gain, such as exaggerating an injury or “milking” recovery to stay out of work longer. Also referred to as “padding a claim.”
Preventing Insurance Fraud Before it Happens
Depending on how far fraud goes (i.e, if the Special Investigative Unit gets involved or anyone is charged with a felony), it can impact your ability to get the insurance you need later down the line. Whether you employ hundreds of workers or just regularly work with sub-contractors, it’s important to be thorough about protecting yourself. As you consider your approach to fraud, strive to:
Operate with Strong Contracts in Place
When it comes to safeguarding yourself against fraud, handshake agreements aren’t enough. It’s in your best interest to have strong legal agreements in place that include risk transfers and the ability to obtain a COI (certificate of insurance) so you can fully understand every contractor’s coverage and protect yourself from others’ wrongdoing.
Do Your Due Diligence During Hiring
A thorough hiring process can act as your first line of defense against fraud. When evaluating employees, be sure to complete background checks so you can get an unbiased picture of how they’ve used (and/or abused) insurance in the past. Investigate their COI to make sure wherever they’re claiming to be insured is legit––even if it’s just checking out the insurance company’s reputation on the Better Business Bureau website.
Stay Aware of Common Red Flags
There are some aspects of certain claims that automatically raise any insurance expert’s eyebrows. While these instances don’t necessarily confirm fraud, they do alert you to claims that carry more risk. Common red flags include:
- Behavioral red flags (Are there inconsistencies in stories? Is the person making the claim hostile and uncooperative? etc.)
- Documentation/evidence red flags (fake medical bills generated with AI, no police report, lack of eye witnesses, etc.)
- Loss circumstances red flags (abnormalities, late reporting of the claim, claims related to fire or water damage, workers’ compensation claims that could be a result of pre-existing injuries, etc.)
Install Surveillance
Whether it’s dash cams on employee-driven vehicles or cameras around your job-site, having footage that you can reference after a claim can be a helpful way to fact-check employee reports or event recounts.
Establish Protocols for Making Claims and Returning to Work
If you’re lucky enough to have an HR department or risk manager in your corner, use them to your advantage. This means creating clear systems for how claims are handled from the moment accidents happen on the job-site. Effective guidelines ensure every claim is as detailed as possible and gets reported ASAP (which allows your insurance company to do what they do best: investigate and substantiate).
It can also be helpful to create structured systems around returning to work that outline expectations for your employees and give them an opportunity to still add value, even when they physically can’t carry out their typical job duties. This is often referred to as a “light duty program.”
Expand Protections as You’re Able
As your business grows, you’re better equipped to protect yourself––and you’re more in need of protection. When and if you’re able, prioritize hiring a risk safety manager or even creating an entire department dedicated to risk management.
Stay in Touch with Your Insurance Provider
Whether you’re dealing with fraud or an actual accident, you and your insurance provider are on the same team. Keeping them aware of what’s happening on your job-site will help you both stay ahead of any potential issues. Even if it’s just a “notice only claim” (i.e., an employee falls, goes to urgent care, and is fine to return to work), don’t hesitate to report the incident.
At Builders Mutual, we specialize in the construction industry––meaning we understand the unique risks you face, day in and day out. From specialized adjusters to independent medical examiners, we’ve got the resources you need to keep your business and your employees as safe as possible. To strategize about how you can avoid insurance fraud moving forward, reach out to your Risk Management Consultant today.
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