Workers' Compensation Fraud: Strategies for Prevention and Action

Working environments are substantially safer today than they were even a few decades ago. Despite this, 3.1 workers' compensation claims are made for every one hundred full-time employees, according to the Bureau of Labor Statistics. Most compensation claims are genuine, but some are fraudulent.

Addressing the Escalating Challenge of Workers' Compensation Fraud: Proactive Measures and Countermeasures

Fraudulent compensation claims are a big concern for insurers worldwide, and the risk is increasing year after year. As a result, the most popular topic of conversation in the P&C insurance market is claims fraud, with the auto and workers' compensation market segments being the main culprits. 

Fraud is usually the result of a person or a group of scammers working together to inflate claims and benefit from a loss. Insurers devote significant time and resources to identifying fraud, draining the insurer's coffers and hurting the risks they underwrite. It also poses a societal danger by encouraging financial crime and penalizing society.

The National Insurance Crime Bureau estimates that fraudulent workers' compensation filings cost the US $80 billion annually. While some large corporations may be able to deal with such circumstances, small firms face significant financial losses in the fight against fraud.

In the guise of purported accidents or exaggerated injuries, employee fraud accounts for around 20% of annual workers' compensation scams. Although actual workplace accidents account for 95% of compensation claims, manufactured incidents account for the remaining 5%, putting the organizations and insurance companies under undue financial strain.

While the vast majority of workers' compensation claims are legitimate, it's always a good idea to be prepared for the outliers. 

What Is Workers’ Compensation Fraud?

Employees may sustain accidents or develop illnesses while working for an organization, rendering them unable to work. This incapacity to work might result in the individual losing their job and incurring medical expenditures to cover their treatment. Employees can seek compensation through insurance when the injury is not (i) self-inflicted and (ii) caused by a violation or negligence of your company's safety rules and procedures.

This option provides a support system for employees and organizations, replacing lost income and covering medical expenditures in the event of workplace or work-related accidents or illnesses. Without workers' compensation insurance, your business may have to pay these costs out of pocket, which might deplete your firm's assets and negatively impact business profitability.

Workers' compensation insurance is required in all states, excluding Texas, for businesses with at least one worker. Whether the law requires it or not, it is always in companies' and employees' best interests to obtain workers' compensation insurance. In this manner, companies can ensure the safety of everyone engaged.

Unfortunately, employees may take advantage of the simplicity with which they may acquire compensation for injuries. They may file fake injury claims, often known as workers' compensation fraud. It refers to any fraud, falsehood, or misrepresentation done for financial benefit in an accident or illness compensation claim. This type of fraud can be committed by employers, employees, insurance firms, and employee medical providers.

Workers' compensation claims are estimated to have a real fraud rate of between one and two percent.

Workers' Compensation Fraud and COVID-19

Regrettably, fraud rose dramatically in the aftermath of the outbreak. Workers have claimed to have contracted COVID-19 while on the job to collect funds from their employers. 

Because the pandemic is such a delicate topic, many small businesses may not do all the necessary verification and examinations, instead believing the claims are valid. Such instances have been increasingly regular, particularly in the industrial and healthcare sectors where actual examples have become more common.

How Insurance Companies Can Combat Workers’ Compensation Fraud

There are several ways that insurance companies can combat workers' compensation fraud, including:

Using AI-Powered Fraud Analytics Software

Fraud analytics in insurance is the game-changer for workers’ compensation fraud. This is because AI-powered fraud analytics software differs from conventional research methods. It can create algorithms to detect fraud and scan through massive data sets almost instantaneously. Databases constantly refresh via machine learning, growing wiser and more effective over time. 

Liaising With an Attorney

One strategy to combat workers' compensation fraud and prevent it from occurring is to hire a local workers' compensation lawyer who can keep track of any contact between employers and insurance providers.

Conducting Rigorous Investigations

Insurance companies should file incident inquiries for all injuries, regardless of the situation. Insurance companies need to take the time to assess why an injury occurred. The first step in preventing such events is fully comprehending the fundamental reason for the incident.

An inquiry might uncover discrepancies or questionable facts and spur safety improvements. As soon as insurance companies learn about the occurrence, they should gather all pertinent facts.

It's critical to undertake an inquiry as soon as possible after an accident. Make sure you have an inquiry template on hand. All through the post-incident questioning, be ready to ask the right questions.

Consulting With Medical Providers

Occupational accidents are unavoidable, so insurance companies should have a dedicated medical professional who will deal with workers' compensation claims. Insurance firms should select a reputable medical provider with extensive expertise in dealing with workplace accidents and injured persons. But be mindful that medical professionals may commit workers' compensation fraud by billing for services they didn't render. Diagnostic procedures to confirm the amount and nature of the damage should be conducted by the chosen medical professional.

Final Thoughts on the Rising Threat of Workers’ Compensation Fraud

In the past, practical tools and strategies depended heavily on intuition and fewer facts. In today's world, this seldom results in success. Current frauds are well-organized, and detecting them without advanced analysis will be challenging. Because fraudsters like to take the route of least resistance, firms that rely exclusively on old fraud detection methods will be soft marks. Companies can employ fraud analytics in insurance to create modern technological models to avoid, identify, and filter frauds.

This serves as a quick facilitator, lowering claim adjustment costs and reducing total claims leakage, contributing to a lower loss ratio. Finally, insurance claims unit stakeholders should increase their performance and efficiency.

Insurance companies need to invest in fraud analytics software to be one step ahead of workers’ compensation fraud. Pilotbird is the ultimate fraud analytics software you need for your firm. Pilotbird enables life and health insurance companies to better rate risk, engage clients, and uncover claims fraud by analyzing social datasets.

Get started with Pilotbird's fraud analytics insurance solutions today! 

Sources

1. 2021 Workers Comp Statistics That Reveal Key Focus Areas (https://getforesight.com/workers-compensation-statistics/#:~:text=Still%2C%20the%20Bureau%20of%20Labor,every%20100%20full%2Dtime%20employees.)

2. 5 Growing Insurance Technology Trends You Can't Afford to Ignore (https://www.pilotbird.com/blog/insurance-technology-trends/)

3. Identifying Red Flags in Fraudulent Workers' Comp Claims (https://www.insuremyworkcomp.com/2020/11/16/identifying-red-flags-in-fraudulent-workers-comp-claims/)

4. We're All Paying the Price of Employee-perpetuated Worker's Compensation Fraud (https://www.hubinternational.com/blog/2017/09/paying-the-price-of-workers-compensation-fraud/)

5. Insuring Your Business: Small Business Owner's Guide to Insurance (https://www.iii.org/publications/insuring-your-business-small-business-owners-guide-to-insurance/specific-coverages/workers-compensation-insurance) 

6. What Is Workers' Compensation Fraud? (https://www2.laworks.net/Downloads/OWC/wcfrauddef.pdf)

7. The Myth of Workers' Compensation Fraud (https://www.pbs.org/wgbh/pages/frontline/shows/workplace/etc/fraud.html#:~:text=Studies%20show%20that%20only%201,workers%27%20compensation%20claims%20are%20fraudulent.)

8. Why COVID-19 made fraud and compliance a bigger issue (https://www.ey.com/en_gl/assurance/why-covid-19-made-fraud-and-compliance-a-bigger-issue) 

9. Using Analytics For Insurance Fraud Detection (https://www.the-digital-insurer.com/wp-content/uploads/2013/12/53-insurance-fraud-detection.pdf)