It’s late one night as you sit at your desk catching up on work. You don’t mind. There’s a full moon, and you have a cup of coffee to keep you company.
But, out of the corner of your eye, you think you see something odd in a stack of papers on your desk. You don’t recognize it. It’s just a declarations page—nothing unusual about that—you tell yourself.
You keep working, making your way through emails and paperwork.
You hear a shuffling. All of a sudden, that declarations page has fallen right into your lap. Your eyes grow wide as you wonder how that happened. There’s no fan in your office.
Your palms are sweaty. Your heart beats a little faster as you pick it up.
As you look closer, you’re horrified by what you see. It’s a nightmare come to life.
It’s a ghost policy.
Now, maybe a ghost policy isn’t as terrifying as something you’d read in a Stephen King novel or see in a horror movie, but the consequences of submitting them can put you in a scary situation. And unlike books or movies, these monsters aren’t fictional.
How Ghost Policies Work and Why They Happen
Ghost policies don’t manifest on their own. Instead, they arise from a deliberate desire to show proof of coverage or save money on insurance costs. Unfortunately, according to Foresight’s Chief Insurance Officer Emilio Figueroa, phantom workers comp ghost policies happen far too often.
“I’ve seen tons of these happen all the time,” Figueroa said.
Figueroa noted that ghost policies are more common in smaller one or two-person operations. Business owners who summon these spirit policies may see it as their only way to provide proof of insurance for clients or avoid expensive premiums.
Ghost workers compensation policies are used to show evidence of coverage, but no employees are covered. Business owners often leave themselves off the policy when they apply for coverage.
Figueroa said major carriers typically pass ghost policies off to the secondary markets because the risk scares them to death.
“It’s a gigantic risk and that’s why they send them to secondary markets.”
Figueroa noted that carriers who write direct-to-consumer policies are more susceptible to this type of fraud.
Brokers who find themselves dealing with ghost workers comp policies will be caught in an endless nightmare of liability issues.
Figeuroa said brokers who are just getting started might be tempted to work with companies who want to use ghost policies. But, making such deals come with a cost.
“If you’re starting off and you’re trying to write policies, is it worth $75 to write a bad policy?” Figueroa said.
Brokers who become aware of workers comp ghost policies should notify the carrier immediately so they can begin investigating.
For those who are willing participants, the consequences can be downright ghoulish. There are many liability issues and even the possibility of criminal charges related to insurance fraud.
How do you identify these apparitions before they haunt your every waking thought?
Check their ex-mod and compare it to what your client is saying. For example, according to Figueroa, if they’ve listed employees in the past but now say they don’t have an employee, that’s a major red flag.
For brokers, workers comp ghost policies put your reputation and ability to do business on the line. So be wary of decisions that will linger with you wherever you go, or as Figueroa suggests, you may become a ghost yourself: “Do you want to be a ghost in the industry?”
Who you gonna call?
You don’t have to be afraid of ghosts or the spirits of bad policies. Figueroa says there’s a surefire way to ward off specter policies,
“In general, you can avoid these situations by using the right data partners.”
Foresight is a ghost policy buster. By using good safety information and insight, no ghost goes undetected in the workers compensation market.
“We have a cleaner picture of the risk than most insureds do because we have real-time data,” Figeruoa said.
With the right partner, you don’t have to worry about ghosts.