Workers' compensation is plagued by fraud, costing insurers some$5 billion annually, according to the National Insurance CrimeBureau. Not only is fraud committed by those who wrongfully collectbenefits, but by employers misrepresenting themselves when buyingcoverage and unscrupulous medical care providers looking to cashin, as well.

How can carriers turn the tide against those scamming thesystem? Technology could hold the answer, as software and databasescan be employed to expose potential frauds.

Workers' comp, like any coverage, can be manipulated byindividuals who see the program as a source of easy revenue.

The most well-known type of workers' comp fraud is perpetratedby claimants who exaggerate or lie about injuries, collect benefitsafter recovering, or receive benefits from one job while employedelsewhere.

On the buyers' side, premium fraud occurs when businesses reducetheir workers' comp premiums by unscrupulous means. Some firms maynot account for all employees on the payroll. Others maymisrepresent employees' jobs--such as a construction company withan inordinate portion of clerical workers (low risk of injury)versus construction "on-site, hard-hat" workers (higher risk ofinjury).

Other companies may hide a history of injuries and risk bychanging their name and reorganizing. One misrepresentation thathas become increasingly prevalent is the misuse of workersdesignated as contract employees.

The potential for premium fraud is vast. While claimants andservice providers can only victimize the system after a claim ismade, there is a risk of premium fraud with every policy.

Key indicators of premium fraud include:

o Employers who operate businesses without proper licenses orregistrations.

o Employers who pay workers in cash.

o Employers who pay for injured employees' medical bills ratherthan reporting the accident to the workers' comp carrier.

Another type of fraud occurs when medical providers seize uponworkers' comp cases to make hefty profits. Doctors may bill fortests and procedures that never took place or prescribe extensivetreatments for minor injuries.

Red flags for provider fraud include:

o A treatment regimen beyond the norm for a particularinjury.

o A team of professionals with a repeated claim history.

o "Cookie-cutter" medical treatment and billing records.

o High incidence of prescribing a multitude of prescriptiondrugs.

Underwriting, loss and treatment data tools can provide checksand balances to avoid lost premium and fraudulent claim payments.Fortunately, technology now allows carriers to run such queries inan automated fashion.

Insurers are using sophisticated software and databases tosystematically spot employee, employer and provider fraud. Knowingwhat to look for and where to find it protects honest claimants,policyholders and caregivers from the negative impacts offraud.

Reducing workers' comp fraud requires initiatives in a range ofareas. One positive development is that state insurance departmentsare creating more stringent regulations and increasing resourcesfor state fraud bureaus. In many instances, the increase inresources is funded by the insurance industry.

Major states are taking the lead.

In New York, Governor Eliot Spitzer signed a bill in March thatwill help combat fraud as part of a workers' comp overhaul. InCalifornia, Insurance Commissioner Steve Poizner recently formed ablue-ribbon Advisory Task Force on Insurance Fraud.

Changing public acceptance of insurance fraud is anotherimportant step. Nearly one out of four Americans says it's okay todefraud insurers, according to a 2003 survey by Accenture Ltd. Theinsurance industry still has a lot of work to do to change thepublic's tolerance of this type of crime.

Within the insurance industry, one of the most effective ways tocombat workers' comp fraud is the application of antifraudtechnology. The arsenal of fraud-fighting tools includes anall-claims database, as well as link analysis, data visualizationand claims scoring tools.

As legislators strengthen workers' comp laws, opportunities forfraud can be curtailed. These efforts should be bolstered bycontinuing efforts to alter the public's tolerance of insurancefraud.

For insurers, the key to discovering workers' comp fraud isdata. By analyzing the claims and premium data insurers alreadycollect, investigators can discover hidden fraud indicators andcatch the individuals, businesses and providers who perpetratescams.