Workers' Comp Ghost Policy
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Workers’ Comp Ghost Policy
Byrd, who until recently was uninsured for workers’ compensation and paid out of pocket when bees stung her workers and sent them to urgent care, said a ghost policy is “a lot cheaper” than buying full coverage but doesn’t allow her to claim it if she or an employee gets hurt on the job.
What Is a Ghost Workers’ Comp Policy?
Ghost workers comp policy would be a policy for those who are self-employed business owners and are not required (by the state) to have workers’ comp – but still must provide proof of coverage in order to get certain contracts. Basically, it functions as a proof of insurance without the actual coverage that comes along with workers’ compensation. The ghost policy will satisfy bare-bones legal requirements for a policy that exists on paper legitimately, but it has no money to pay for medical care, lost wages and related benefits for workers who are hurt.
Most states have laws that require workers’ compensation insurance if you have one or more employees. Most state laws do not require sole proprietors, independent contractors and other exempt persons to have this kind of coverage. But many clients, general contractors or government agencies demand evidence of workers’ comp insurance before they give you the work. In such cases, the ghost policy can act as a shortcut to help exempt business owners obtain a certificate of insurance (COI) without needing to get the full workers’ comp coverage under their belt.
How Ghost Policies Work
On paper at least, a ghost policy operates like any other workers’ compensation insurance policy. The insurance company provides a policy number, coverage dates and limits. The insured has a COI which lists a policy limit which complies with their contractual obligations. Behind the curtains, however, the carrier actually constructs the coverage on almost no premium basis and commonly puts any insured in separate contract whereby carrier’s responsibilities are mainly limited to providing documentation that they are on insurance. No portion of the medical claims funds are set aside, no payroll or payroll projection records have been audited and there is no assurance that benefits will be paid if an employee is injured.
What is a workers’ comp ghost policy?
A workers’ comp ghost policy is an insurance solution that issues a certificate of coverage for workers’ compensation but lacks the wide range of coverages typically found within standard policies. In a way, it can be viewed as a holding place, providing proof of insurance in order to meet contractual or regulatory obligations and “though you don’t get the medical expense coverage or wage replacement benefits that an employee gets under a regular workers’ compensation policy,” says Keller, “it meets your insurance requirement at face value.” These ghost policies are typically sold for a fraction of the price of full policies and are attractive to businesses looking to save money on overhead or land contracts that require proof of coverage.
As appealing as a ghost policy is, there are caveats with this approach. And, while easier to contract over the cost because it shows an employer now possesses “coverage” on paper, cost still is a problem if you are not protected from the cost of medical treatment, rehab and the loss of pay due to an on-the-job illness or incident. In addition, a ghost policy can lead to audits and backdated premium changes if employees do get found out about. The reality of ghost or phantom light truck insurance is something every responsible, successful business owner owes to themselves to at least become familiar with.
What is a Ghost Policy?
In a word—nothing. “Ghost” workers’ compensation insur…ance policy is a policy that provides an employer with coverage papers alone and not the benefits of true workers’ c!/l7)en. The certificate produced under a ghost policy might be enough to get you in the door for municipal contracts, sub-contractor agreements or leases with others that require proof of workers’ comp coverage. However, if an employee does suffer a work-related injury or occupational disease, the ghost policy will not provide the medical treatment, disability benefits and vocational rehabilitation that a full policy provides.
The phrase "coverage under a ghost policy" is entirely theoretical. Employers are handed a document confirming that they have workers’ compensation insurance, but there is no actual indemnification for employee claims behind the piece of paper. The ghost policy is nothing more or less than evidence of being in compliance with contractually or statutorily imposed coverage requirements. As a result, ghost policies sit in an ethically and legally nebulous area. Employer misinformation may inadvertently – or purposely – deceive employees, customers and regulators about their protections for the injured worker."
What’s needed to secure a ghost workers’ comp policy?
Because a ghost workers’ compensation policy provides proof of insurance rather than actual coverage, two simple ‘solutions’ are: 1.
what you need to get insurance, like ghost policy:
You own a business or are self-employed.
You are not employing anyone, whether full-time or part-time.
In the majority of location’s with workers’ compensation laws, employees who are injured or become ill at work are protected. If you are a one-person (or zero-person) operation, with no employees working for you, the law frequently carters to you in ways it won’t for a business that has staff. This is where a ghost policy comes in: It gives you a certificate of insurance which is all you need to show to satisfy most clients or state requirements, but indicates that no benefits could ever be paid out on it because there’s never been any covered workers.
This often occurs when sole proprietors engage directly with end-clients, because such contracts regularly contain clauses stipulating proof of workers’ compensation prior to commencement of work. Though exempt from the law, these professionals must still show insurance. A ghost policy fulfills that requirement — for much less than the cost of full coverage.
Who needs a ghost workers’ compensation policy?
Ghost workers’ comp policies are the kind bought by individuals who are independent contractors and sole proprietors who need to provide proof of workers’ comp to get new clients or be eligible for contracts, but don’t want to pay for a regular workers’ compensation policy.
In most states, one-person businesses are not required to carry workers’ compensation insurance, so the ghost policy provides them with a cost-effective way to show proof of insurance — without actually being insured. By providing a certificate of insurance, these tradespeople don’t miss out on those jobs, or get rejected for projects simply due to no “formal” workers’ compensation in place.
This category is often home to independent consultants or freelance tradespeople and service providers who work on a project by project basis. They probably don’t ever use helpers or subcontractors and their exposure is low as opposed to owners with more than one employee. For them, the cost in administrative burden and premiums for a full policy would easily outweigh any conceivable benefit.
Added costs of Workers’ Comp Ghost Policies
Workers’ compensation insurance is an important safety net that helps to assure workers injured on the job receive the medical treatment and wage loss benefits they need. But woven into this critical system is a deadly risk called the “ghost policy.” Unlike a real coverage plan, however, a ghost policy falsely claims to protect us while it actually offers nothing — no genuine coverage, no insurance contract and, most importantly when claims happen: No support. The consequences of these policies can be devastating: Employers think they have met their legal obligations and protected their workforce, only to find out too late that they are completely unprotected.
The costs of a ghost policy, however, are about more than just the make-believe premiums paid out to dishonest brokers. When an employee is hurt, the employer shoulders the cost of medical bills, legal fees and hopefully rare civil judgments. Furthermore, a state regulator may issue penalties or file criminal charges against those who do not keep valid coverage. In many cases, the threat of regulatory action brings reputational harm, credit rating downgrades and loss of trust with customers and employees as well. In addition, the physical destruction caused by out-of-the-blue uninsured claims can lead to cash flow difficulties and small- and medium-sized businesses having to take resources away from their growth plans or close down completely.
Ghost policy plans may have initially a low rates that are seemingly lower than the premiums from an actual carrier—perhaps 20-30% under market. But that low cost obscures the fact that ultimately there isn’t any risk transfer at all. Employers who select a ghost policy think that they've minimized costs, only to find their real expense comes straight after an incident. Yet there is an even more insidious cost beyond the numbers; the price of distracted management, compromised morale, and psychological weight which comes from knowing that any safety net is only a mirage.
Factors Contributing to the Rise of Ghost Policies
The rise of ghost policies is a symptom of a number of systemic and market-related elements. Foremost among these are the difficulties of workers’ compensation regulation. Every state has different mandated coverage, job classification code requirements, mod filing thresholds and reporting procedures. Small business owners'including those without human resources or legal staff'can easily be misled to think that obtaining a certificate of insurance means they've met all legal requirements. Unethical brokers take advantage of that gap with fake certificates, providing elaborate paperwork in the likeness of official forms without the underlying policy documentation legally binding an insurer.
Price pressure, the pricing follows continues in some high-risk industries too. The construction, transportation and some manufacturing industries are constantly dealing with high workers’ compensation premiums. In order to be competitive in bids, some contractors and subcontractors search for ways to cut costs -- which can mean the siren song of a surprisingly inexpensive coverage. Real insurers are unwilling to offer policies at drastic discounts, so unscrupulous agents step up and sell phantom coverage in the guise of hard-to-find high-risk policies.
Experience Modification Rates (EMR) muddy the waters even more. The higher the EMR, the more a company pays for coverage, which leaves little room for profitability margins. Consequently, they are the only people who have business owners find out about the cheaper priced program types with exotic names and descriptions that say nothing about how just because a deal sounds sweet doesn't mean you can eat it or in this case buy a risk transfer when none exists. Adding to the deception, a few TPA's and lead brokers are giving the appearance of legitimacy by co-marketing with popular insurance carriers. So it’s not just sold by shady operators After my radar post, agents and others started coming out of the woodwork saying that they could obtain ghost policies as well The ghost policy itself, however, is sometimes produced by licensed folks who brush their fiduciary duties under the rug because there are extra fees or additional volume involved They’re looking the other way avoiding what should trigger a possible fine from their state office… but often times nothing at all.
High penalty levels for noncompliance The lack of proper enforcement and low penalties in some states enable ghost policy schemes to continue. And when investigations ensue, they frequently uncover a mess of shell companies, nominee brokers and offshore bank accounts. The process of tracing liabilities is time-consuming and resource-intensive for state insurance departments, which is why most ghost policies go undetected absent employers themselves raising a red flag.
Comprehending a Ghost Policy_ _ What Is It?
The concept of a “ghost policy” within the context of workers’ compensation insurance is one like a secret or fake insurance policy that makes something seem like it exists without there actually being any real nomination despite the workforce who should be covered being made to believe they have proper coverage for themselves collectively. Ghost policies typically result from unscrupulous agents or brokers selling little or no actual coverage, while still managing to accept premiums, according to Ethos. How Discovering a Poof or Ghost Policy Can Be Catastrpohic to Business Owners For business owners, finding out that you have been paying on a ghost policy can be devastating: not only are you uncovered when and employee is injured, but there could be huge fines, back premiums and even criminal exposure. Knowing what a ghost policy is, how it comes about, and what you can do to prevent or correct the problem not only will protect your business but also help protect your employees and financial well-being.
How Ghost Policies Emerge
Ghost policies can arise by a number of means, all intended to mask the real nature of coverage. Sometimes, a policy and/or related documentation will be “front-loaded” by an insurance agent when it contains information purporting that the employer possesses a fully underwritten workers’ compensation policy when in fact no such policy has ever been issued. Rogue brokers can accomplish this by counterfeiting insurance certificates, providing false carrier names or policy numbers, or simply creating identical declarations pages from a lapsed or cancelled policy. Rather, in some cases a company might buy an “empty” policy with meaninglessly low limits — far below what the law requires — all the while thinking that it has full statutory coverage. In some cases, employer groups or payroll intermediaries are packaging workers’ comp in broader deals but not sending the premium on to the actual carrier. Even experienced small-business owners can be taken in by these scams if they’re depending on nothing more than verbal assurances or a paper-thin stack of documents.
How Ghost Policies Can Be So Deadly
A ghost policy, at first glance, appears to be a harmless bookkeeping mistake or casual lapse by an agent. Yet the repercussions are severe. If an employee is injured on the job, and there isn’t really any coverage at all, then it’s going to be up to the employer of that worker to cover costs involved in paying for medical treatment, making up for lost wages, and covering lawyer fees. Those costs can quickly grow to $10,000 or $100,000 or more depending on how serious the injury is. Furthermore, workers’ compensation boards at the state level audit employers on a regular basis to ensure compliance. Finding an invalid policy during an audit usually means serious penalties: fines for every day you didn’t comply, back premium assessments or in some cases, insurance fraud charges. In addition to the financial fallout, reputational harm can jeopardize relationships with clients, vendors and the community at large — discouraging years of business goodwill.
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