Phoenix--The insurance crime most costly to insurers is workers'compensation insurance premium fraud, an expert investigatoradvised at a seminar here on how to detect such activity.

Neil Johnson, manager of the Boston-based Liberty Mutual PremiumFraud Special Investigation Unit, cited recent statistics fromMassachusetts showing that while premium fraud makes up 9 percentof insurance fraud cases referred to the state, it resulted in morethan 67 percent of the insurance dollars lost last year.

Mr. Johnson, speaking at the International Association ofSpecial Investigation Units meeting here, said in an interview thatthe vast number of dollars involved has caught the attention ofstate legislatures who are changing their statutes to deal with theproblem.

"They are waking up and making [premium fraud] a felony," hesaid.

He told participants at the session, "In the mid-'90s, premiumfraud was relatively obscure--not like it is today." Mr. Johnsonalso commented that many of the premium schemes "are becoming moreorganized-crime driven because it's an easy way to laundermoney."

In his biggest case to date, he said he had unmasked a $15.5million premium theft in Indiana by a business that tried to getaway with paying $471,000.

Mr. Johnson advised insurance investigators at the session thatit is important for them to have top-level support when theyinvestigate clients, an activity that may run counter to asee-no-evil attitude by some underwriters.

"If you don't have the backing of senior management, you're introuble," he said, cautioning that speedy action is important,because "the longer you wait, you're talking millions you willnever recoup."

Among the methods used by companies to dodge the payment ofproper comp premium amounts, he noted, are misstating the size ofpayroll and employees and misclassifying workers as doing jobs withless risk attached.

The use of wrong class codes, Mr. Johnson said, is very commonwith construction, employee leasing and trucking firms. Otherdodges involve misrepresenting the locations where workers aresituated to put them in a state that charges less for their jobclass and incorporating the firm as a new business to avoid a poorexperience rating.

Mr. Johnson detailed how businesses that are aware that insurershave certain thresholds will lie to keep their premium cost below$10,000, "so you guys don't take a look at me."

Mr. Johnson noted that premium crooks are not always "thebrightest candle." In pursing them, he often simply goes on theircompany Web sites to see where they say they are operating and whatjobs they are performing.

Mr. Johnson told of one case where the employer had changed itsname to get a new experience rating but was so sloppy in theirmasquerade that they sent in a check for the premium with the oldcompany's name on it.

In another instance, he said, a dishonest company changed itsname using a consultant they hired to mask their activity. When theconsultant stole some of their money, they sued him and outlined intheir court papers their scheme to reincorporate to get a betterinsurance rate.

Investigators with suspicions should examine corporate taxreturns, which will frequently include data not reported to theinsurer, he added.

To get a true idea of a construction firm's work volume, Mr.Johnson suggested checking counties for work permits and values ofjobs. He also recommended looking at Dunn & Bradstreet salesinformation and estimated employees.