Workers’ Comp Ghost Policies Are Increasing Risks for Small Businesses

Ghost workers’ compensation policies are becoming a growing issue for small businesses, as they provide proof of insurance without offering actual coverage to employees in the event of workplace injuries. These policies, often used to meet legal or contractual requirements when bidding on jobs, allow businesses to avoid the costs of full workers’ comp insurance. However, they leave both workers and employers dangerously exposed. When an accident occurs, employees have no access to medical care or wage replacement benefits, and employers face severe financial and legal consequences.

This issue has prompted 23 U.S. states to ban ghost policies due to the high risks involved. North Carolina has been identified as a state where abuse of these policies is common, with over 16,000 ghost policies written annually, particularly targeting high-risk businesses that cannot obtain traditional coverage. One case highlighted the dangers, where a contractor was bankrupted after a worker, falsely classified as an independent contractor, was paralyzed on the job. The ghost policy provided no protection, resulting in devastating losses for all involved.

In Colorado, where workers’ compensation is mandatory, the state has introduced fines of up to $500 per day for non-compliance. The state’s Division of Workers’ Compensation reported over 34,000 lost-time claims in 2022, underscoring the significant financial impact of workplace injuries. Legitimate workers’ compensation insurance is crucial for protecting businesses and their employees, and ghost policies are a costly and dangerous shortcut that can lead to catastrophic outcomes.