Understanding & Combating Premium fraud schemes

1. Presented By: Buddy Yawn, CFE, FCLS August 25, 2011 Understanding & Combating Premium fraud schemes MSB/Workers' Comp Fraud Working Group

2. “The Fictitious Shell Company Scheme”

3. The Players: • Shell company • Owner of the shell company • Facilitator • General Contractor (GC) • Uninsured crews (Subs) • Money Service Business (MSB) • Agent (ocassionally)

4. Cash (Less % to Shell & MSB) Money Store Ins Carrier #1 CTR COI’s GC Provide Labor Check Shell Company (Facilitator) Uninsured subs Labor Force Agent Min Premium Policy Take Check payable to Shell Co. from GC Ins Carrier #2 (Victim of Premium Fraud) Or directly to the MSB Facilitator

5. Shell Scheme: How It Works • Occasional parties complicit in the scheme • The insurance agent / agency • The General Contractor .

6. Impact of a Shell Scheme • Little to no premium is paid • Certificate of Insurance (COI) provided at annual audit • No record of funds • Amount of COIs issued • Exposure of uninsured crews • Claim issues

7. How to Detect the Shell Scheme • Intelligence gathering • Claims review • Contact the agent • Evaluate ratio of COIs • Request 1099’s issued to insured • Do 1099’s show large amount paid to insured that are not listed in the financials?

8. Scheme in Real World Ins Carrier (for GC) General Contractor Ins Carrier (for Shell Co) Petition For Benefits Sub to GC Agent of Shell Company Employees of Sub Claim COI’s Shell Company Attorney Hospital

9. Problems for the Carriers • Shell’s Carrier • Respond to the PFB • Legal/Invest costs • Determine relationship • Late reporting • Review policy/premium • Difficulties at audit • Do they collect premium? • Do they have more exposure due to scheme? • GC’s Carrier • Respond to the PFB • Legal/Invest costs • Determine relationship • Late reporting • Review policy/premium • Do they collect premium? • Valid coverage indicated at audit? • Experience Mod issues

10. Question &AnswerSession