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Fraud investigations are triggered by red flags in a workers compensation claim, and the examples run the gamut.
No witnesses to the employee’s alleged injury; the timing of the claim, such as right after the weekend; an employee who has frequent or repetitive injuries; inconsistent medical treatment or statements about the injury; or the location of where the incident occurred, are just some examples of what can spark suspicion.
Fraud experts say employers and their insurers have reasons to be concerned: Workers comp fraud costs insurers and employers more than $1 billion annually, and that number is expected to rise, according to the National Insurance Crime Bureau.
Despite many companies moving to remote work because of the COVID-19 pandemic, NICB said it’s seen a spike in workers comp fraud referrals over the past two years.
The bureau noted the increase could be indicative of the opportunistic nature of workers’ fraud claims and the state of the economy. Workers who have been laid off due to the pandemic have hired attorneys and filed questionable workers comp claims for injuries not previously reported to their employers, or workers who were successful with previous claims may be becoming “repeat offenders,” NICB said.
“Workers compensation fraud is one of the many layers of fraud that exist, resulting in increased costs to insurers, increased costs of premiums, and unintentionally exposing honest employees to risks,” said NICB President and CEO David Glawe.
Insurers invest significant resources each year, both in internal and external personnel as well as technology, to identify and investigate fraudulent workers’ comp claims.
Fraudulent claims by workers, which are the most common types of comp fraud, typically involve employees with an existing injury claiming benefits, those misstating facts about a claim, fake or exaggerated injuries, false loss statements, fictitious losses, and individuals who still work or earn income while claiming comp benefits.
Jennifer Langan, vice president and chief claims officer for Missouri Employers Mutual Insurance Co. in Columbia, Missouri, said the company investigates every workers comp claim before determining compensability of a loss to rule out potential fraud activity.
In Missouri, about 10% of workers comp claims turn out to be fraudulent, she said.
If a claims investigation reveals any suspicious allegations, Ms. Langan said the company’s special investigations unit is brought in to further investigate.
“Obviously, fraud affects everybody and that drives up the overall claims cost, so we’re really trying to make sure that we’re doing our due diligence for our policyholders and our agencies,” she said.
Bill Byington, MEM’s senior special investigative unit specialist, oversees workers comp fraud investigations for the company and, when applicable, refers his investigations to the state attorney general’s office for further action.
The cost of investigating workers comp fraud claims varies greatly, he said, because there can be different components involved in each investigation, such as surveillance, subpoenas, depositions, medical reviews and legal reviews. Some claims can be easily proven as fraudulent and denied without huge costs. Other claims may be “partially fraudulent,” Mr. Byington said, such as when an employee is injured at work and receives comp benefits but then also earns income from a side job.
“If it’s apparent early on that we can prove beyond a reasonable doubt that this was a fraudulent file and get on with the denial as quickly as possible, that’s the best outcome we can hope for from a fraudulent aspect,” Mr. Byington said.
If a claim is determined to be fraudulent, MEM works with the employer to prevent the problem from happening in the future, Ms. Langan said.
Tony Natale III, supervisor of Philadelphia-based law firm Marshall Dennehey’s workers compensation department, has spent more than 30 years defending insurers and employers in workers compensation cases, with a caseload that has included a variety of federal cases and workers comp matters for the NHL and NBA.
In 99% of cases referred to him by insurers there is an element of fraud, Mr. Natale said, whether it be an employee who exaggerated their injury, or a claim for an injury that didn’t happen at work.
Mr. Natale said insurers have been more proactive in investigating fraud claims over the past 10 years, but they are more hesitant about taking additional legal action when there is fraud involved. It can be challenging and expensive to prosecute fraud claims because it must be proven that the claimant acted with the intent to defraud, he said. Companies often decide it’s more cost-effective to settle the case and close the file.
“You have to look at the big picture – even if we can prove (there’s fraud), we are going to be paying benefits for years before we get this person off of comp, versus, I can settle it for one year of benefits today,’” he said. “(But) just because we settled this case to stop the bleeding doesn’t mean that fraud isn’t there.”
Mr. Natale said the industry should work with attorneys in taking a stand and fighting fraud because it will make a difference in the number of overall fraud claims.
Technology companies are offering products to identify workers comp fraud.
Klear.ai in Cypress, California, has developed predictive analytics software that uses artificial intelligence to scan for potentially problematic claims.
Klear.ai said its model’s algorithm lists more than 40 red flags that indicate potential fraud, including demographic and employment details, wages, number of claims filed in the past three years and other behavioral markers. Adjusters can then investigate the claims identified.
Anand Shirur, vice president of product development for Klear.ai, said the company works predominantly with insurers’ claims teams. The growing sophistication of fraud schemes and the industry’s talent gap, which will make it harder to find experienced adjusters who are adept at spotting fraud, will increase the necessity of fraud technology, he said.
“We have every reason to believe that going forward, technology is going to play an even more important role in being able to identify and detect fraud,” he said.
The biggest difference between handling cyber claims and more traditional property/casualty claims is the speed with which the process unfolds, which demands an immediate, coordinated response by the policyholder, insurer and broker, observers say.