What Fraud Looks Like
Claimant fraud trends have been on the rise in recent years, reflecting current economic conditions. Claimant fraud occurs when false or exaggerated injury claims, such as those not received on the job, are filed. The National Insurance Crime Bureau (NICB) reports that as the economy has deteriorated over the last several years, the number of suspicious or questionable claims has increased. For instance, the NICB states that the number of questionable claims related to workers’ compensation increased 71 percent between the first quarter of 2008 and the first quarter of 2009 alone.
Equally troublesome is the impact increased medical costs have had on workers’ compensation. Traditionally, 60 percent of injury claim amounts covered the indemnity payment while the remaining 40 percent covered medical costs. Today, the relationship has reversed, illustrating how dramatically medical costs have risen, while frequency and indemnity payments have decreased.
Employer premium fraud is another aspect of workers’ compensation fraud facing the property and casualty insurance industry. Employer fraud occurs when an employer underreports payroll, misrepresents job classifications or business type, or misclassifies employees as independent contractors in an effort to reduce workers’ compensation insurance premiums.
Fighting Fraud on Two Fronts
The industry is currently fighting back hard against the problem of fraud, focusing on two major antifraud efforts: fraud awareness and investigation/enforcement. In regard to fraud awareness, insurers are placing greater emphasis on fraud training for claims adjusters and underwriters to help them identify signs of suspect behavior or claim patterns. Furthermore, support for public fraud awareness and education has been broad, involving not only insurers but the CAIF, consumer interest groups, and the NICB as well.
Of the total number of fraud referrals, 13 percent—or 1,676 referrals—were for suspect workers’ compensation cases.
During 2009 and 2010, the Florida Bureau of Workers’ Compensation Fraud was restructured and now is a completely independent unit within the Division of Insurance Fraud. According to the division, the restructuring will enable a more focused approach to combating various types of workers’ compensation insurance fraud. It will also make the bureau more responsive to changing trends, since all fraud referrals are channeled through one contact point within the division.
Technology as an Antifraud Weapon
Regardless of the type of fraud occurring in the workers’ compensation sector, insurers, law enforcement, and employers, among others, have faced challenges in investigating and identifying fraudsters. However, effective technologies and analytic capabilities are rapidly changing the antifraud landscape.
Premium audit models are another effective tool insurers can use to combat the problem of employer fraud. When insurers routinely audit commercial accounts, the audits should include fraud detection to ensure the accuracy of the premium collected for workers’ compensation. Insurers use predictive models to optimize audit resources and effectiveness in three key areas: deciding which accounts to audit; determining the most efficient allocation of mail, telephone, and physical audits; and optimizing the order of audits so any additional premium due the company can be identified early.