Insurers Battle Workplace Fraud : Scams: Insurance companies are cracking down on firms that falsify information on their applications in order to get lower rates.

HARTFORD, Conn. — What began as routine insurance ended up in charges of fraud and racketeering against a company that seemed to rival Shirley MacLaine for reincarnations.

The company started as Atlantic PBS Inc. of Rehoboth, Mass., but turned into INRI Construction Co., and then Bee Gee Enterprises Inc., to try to cheat insurers out of their rightful premiums, insurers say.

The new businesses had no history of claims, which had driven up Atlantic’s premiums, insurers say.

An official of the contracting and insulation companies said there was no wrongdoing. But in August, Liberty Mutual Insurance Co. and a trade group sued the officers, companies and insurance agents in a case that is expected to set the tone for insurers’ attacks on employer fraud.

And insurers nationwide have started waging war on this type of fraud, which until recently has gotten little attention but has drained the industry of big bucks.

Some employers are hoodwinking insurers about the size and nature of their businesses to obtain lower premium payments, insurance officials say. But some of those employers are fighting back with lawsuits--at least one charging insurers with antitrust conspiracies and excessive prices.

Premium scams, insurers say, are hurting all employers who buy coverage, not just the insurance industry. The cost of fraud is passed on to customers in higher rates.

“It’s just like the S&L; crisis,” said Henry J. Hutten, field investigator in Aetna Life & Casualty Co.’s new Workers’ Compensation Fraud unit. “Everybody ends up footing the bill for the gain of a few people. It’s not a comfortable phenomenon to watch and know that it can go unattended.”

Workers’ compensation insurers do not know how many employers are involved in this type of fraud or how much money has been lost because of employer scams. But it could easily be in the hundreds of millions of dollars.

Travelers Corp., for instance, says it is owed $19 million in one case it has investigated and $6 million in another.

Employers have had more incentives to defraud insurers in the past few years as rates for workers’ compensation coverage have soared and the nation has plunged into a recession, insurers say.

So insurers are stepping up a counterattack. The National Council on Compensation Insurance, or NCCI, an industry rating and statistical organization, has hired workers to investigate some employers’ applications for insurance. And Aetna and Travelers have dedicated special units to investigate possible premium fraud by employers on workers’ compensation coverage.

But insurers fear that there is even more fraud than they know about.

“If your intent is to set out to misrepresent and take advantage of various systems and various people, it’s incredibly easy to do it,” Hutten said.

The culprits “know how insurance carriers operate, and they know where there are windows of opportunity to take advantage of the system,” Hutten said. He said those he has met “are people who are not ashamed to lie as a way of doing business.”

Insurers have alleged fraud in a variety of industries, including employee leasing, trucking and contracting.

The fraud is based on the way insurers calculate workers’ compensation premiums. Rates for premiums are based on size of payroll and are higher for work considered risky. There are hundreds of job categories, each with a different rate.

For instance, the rate for many Connecticut roofers in a statewide insurance pool is $46.30 for every $100 of payroll; the rate for secretaries is 46 cents.

To compute the right rate, insurers need accurate data about an employer’s payroll and the kind of work employees do. Some employers understate one or both, sometimes intentionally, insurers say.

Some get what amounts to an interest-free loan from insurers by grossly underestimating payroll, said Lynn E. Szymoniak, senior counsel to NCCI.

Premiums are based on expected payroll and are adjusted after the policy ends and an audit shows the actual size and makeup of the payroll during the year. So employers can postpone paying part of their premiums.

Sometimes investigators detect fraud when employers are applying for insurance, but often it does not surface until claims are filed.

The claims are legitimate, but they may indicate injuries that should not be happening to the types of workers an employer has listed. Insurers joke about getting claims from “secretaries” who fell off roofs. Most likely, the employer insured the workers as secretaries for the lower rates, but they really were doing construction work, insurers say.

Claims may also show employees were working at a site the insurer was not told about--perhaps in another state where the insurance rates would be higher. Also, the number of claims from an employer may indicate a larger work force than was reported to the insurer.

Other employers may metamorphose into new companies to shed a history of claims that is driving up their insurance rates, insurers say.