A fake injury, staged slip, trip and fall accidents, double-dipping. Workers' compensation fraud has been a persistent issue for our industry since the U.S. implemented workers' compensation laws in the early 20th century.
Fast forward 114 years. According to a Forbes Advisor report, workers' compensation fraud causes about $34 billion in yearly insurance losses – $9 billion from fraudulent workers' compensation claims and another $25 billion due to workers' compensation premium losses.
The National Insurance Crime Bureau (NICB) and the Coalition Against Insurance Fraud (CAIF) have reported that roughly 10% of these claims are estimated to be fraudulent. The study points out that small businesses are especially vulnerable to workers' compensation fraud due to limited resources for thorough investigations.
Some recently emerging types of workers' compensation fraud were not widely recognized a decade ago. These include claims from remote workers, fraudulent claims resulting from targeted data breaches and other issues associated with the increasing use of technology, as well as sophisticated medical billing fraud, among others.
So, the multibillion-dollar question: How can we turn workers' compensation fraud detection into a risk management advantage?
Let's examine some key tools agents, brokers and insurers can encourage employers to use to reduce, if not eliminate, this costly issue. No single tool is a cure-all. Instead, they should all be integrated into a comprehensive fraud prevention strategy.
Early Identification of Fraud
This is where workers' compensation fraud mitigation truly starts. Both insurers and insured employers need to create a strong and complete reporting and investigation system, which includes the obligation to report all workplace injuries right away.
Furthermore, creating protocols for detailed investigations of any suspicious claims can help confirm whether each claim is legitimate or, importantly, identify those that seem suspicious. Prompt claims reporting by both the insured and injured employee can help stop fraudulent attempts to collect false benefits. Insurance professionals can support their insureds by emphasizing the importance of honesty and accuracy when reporting injuries.
It's far easier to gather evidence at the time of the incident, rather than after time has passed, because important findings or key witnesses might no longer be available. The sooner a claim is filed and reviewed, the less chance there is for false documentation or manipulation.
Strong Documentation and Compliance
While early detection is crucial, maintaining current and thorough documentation of records, including workplace incidents, injury reports, medical assessments and communications, can serve as evidence in potential disputes.
Accurate documentation is fundamental to a workers' compensation claim and requires careful attention to detail. The process begins immediately following an injury or diagnosis, when it is crucial to record all relevant information about the incident and the subsequent medical assessment to support a legitimate claim.
This documentation also includes reports from initial emergency responders, subsequent treatment strategies and pharmacy records, all of which can greatly affect the determination of compensation for lost wages and medical expenses.
Additionally, while not every state requires employers to carry workers' compensation insurance, it is crucial for all parties to stay informed about any requirements and penalties to ensure their coverage complies with state laws. Moreover, staying updated on industry changes, legal updates and new best practices for detecting and preventing workers' compensation fraud is also important.
Sharing this information with potential claimants can build a culture based on accountability and integrity, which is vital in a comprehensive workers' compensation fraud prevention environment.
Embracing a Collaborative Approach
Insurers can educate their policyholders about maintaining regular and close communication with insurers, medical professionals, attorneys and all necessary parties when managing a claim. Knowing how to navigate the claim process among all involved is crucial.
To stay ahead of the claim's outcome, those employers should also familiarize themselves with the policy and benefits available, as well as communicate clearly and concisely—always sticking strictly to the facts.
At the heart of preventing workers' compensation fraud is building a strong culture of integrity in the workplace. Both insurers and insureds play a crucial role in this by setting clear standards for honesty and transparency and demonstrating these values themselves.
This includes not only following ethical guidelines in their financial transactions and reporting, but also creating a supportive environment where employees feel valued and appreciated. When injured employees are treated with respect and fairness, they are less likely to participate in fraudulent activities against their employer or exploit the workers' compensation system.
Robust, Hands-on Training Programs
Insurance professionals should encourage insureds to provide continuing and comprehensive training. It is best practice to inform potential claimants about the workers' compensation process, their entitlements and obligations, as well as the repercussions of fraudulent actions. A thorough program will enable insureds to:
- Know all aspects of workers' compensation fraud
- Better understand reporting procedures and how to best collaborate with regulatory agencies
- Acquire skills for investigating and recording suspected fraudulent behavior
- Identify signs of fraudulent activity among insureds, injured employees and insurance professionals
- Mitigate risk by adopting proactive claims management practices
Additionally, it's important to stay updated on industry changes, legal updates and effective methods for preventing and detecting workers' compensation fraud. Sharing this information will help foster a culture based on accountability and integrity.
Embracing Technology
Thanks to advanced claims software, artificial intelligence (AI) and other surveillance methods, we can streamline review processes and detect potential red flags early, giving us the strongest set of tools ever to fight workers' compensation fraud.
- A strong predictive fraud model analyzes and assesses data from various internal and external sources, including claims history, medical billing information, public records, databases of medical providers, industry standards and specialized investigative and geographical data.
- AI models can analyze and assess thousands of incoming claims in near real-time, quickly pinpointing those most likely to be fraudulent.
- Technology-based strategies like video monitoring, social media oversight and field investigations can help detect patterns, verify claims and identify fraudulent behavior.
These and other capabilities enable investigative teams to concentrate on the most suspicious cases early on, instead of waiting weeks or months.
By recognizing the divisive effects of workers' compensation fraud and dedicating ourselves to joint preventive measures, we can protect the integrity of the system. This approach is crucial not only for supporting injured employees but also for upholding the equity and confidence that are fundamental to our wider social and economic frameworks.
