A grand jury empaneled by Manhattan DA Cyrus Vance yesterday issued a sweeping report on widespread premium fraud in the Empire State’s workers compensation system. New York insurers lose nearly $500 million in premium in just the construction industry, the report says.
Vance highlighted the report in a keynote speech yesterday at the annual meeting of the New York Alliance Against Insurance Fraud (NYAAIF). He outlined several useful reform ideas, including:
• Increasing penalties, especially for large-dollar fraud schemes,
• Requiring insurers to conduct more audits of insured businesses,
• Creating a uniform application form, and issuing IDs injured workers can use to get medical treatment; and
• Developing an integrated database of information on applications, audits and certificates of insurance.
The last recommendation details how data analytics can be employed to better detect fraud, but it needs to go further.
What’s still needed is a simple solution to determine if an insured is accurately reporting payroll. The state could set up a relatively simple database with aggregate payroll data that it maintains from tax information all employers are required to report by law. Using tax-ID numbers, insurers could query the database and determine if there are discrepancies with data reported on comp applications.
Yes, some employers do defraud both insurers and the state in under-reporting payroll, but most don’t because penalties for tax fraud are much steeper than premium schemes.
To protect privacy, the aggregated data from the state wouldn’t have to be disclosed to insurers — only whether the data doesn’t match. A mismatch then would trigger an audit.
This solution — combined with advanced analytics to detect misclassification — could deter and detect much of the fraud, except for the very sophisticated schemes.