How to identify Workers’ Compensation Premium Fraud

by:  Michael T. LoBue, CAE

Workers’ compensation premium (WCP) fraud investigators identify the three most common indicators that criminal fraud is taking place.  It’s important to recognize that “intent” also needs to be present for a successful criminal conviction.  Establishing intent is for professional investigators to discover.  However, for many in the staffing and insurance industries, the following signs may be sufficient to suggest that authorities conduct investigations:

  1. Significantly low rates
  2. Certificate issues: Listed insurer doesn’t match the risk, or is not properly written
  3. Self-adjusting claims

Read on for further explanation of these “big three” indicators of WCP fraud.


Low Rates

“If it seems too good to be true, it probably is.”  We’ve all heard this at least one time in our lives – usually from a caring parent. 

This advice applies to business as well, especially when it comes to deals offered by some staffing agencies.

How many times has a staffing agency or PEO sales representative walked away from trying to close a new client because the prospective client is holding an offer the legitimate agency can’t even come close to touching?  If the offer they are asked to meet or beat is off by 10% or more, it may be due to WCP fraud. 

Certification Doesn’t Match the Risk

If you have access to the certificate of insurance for the workers’ compensation insurance, there are two things to look for.  

  • First, does the coverage match the employee job class?  For example, is the coverage specifically for a lower risk class than the actual class of those covered by the policy?  One obvious discrepancy is coverage for an office class vs a class of outdoors work of a manual labor class.  This is a clear case of class misclassification.
  • A second mismatch might be workers’ compensation coverage provided by an insurance company that is not known to cover the work being performed.  It’s not a case of the insurance company committing the fraud, but the insurance company accepting declarations made by the employer that their employees are performing work in lower risk classes than the higher risk work they are actually performing.   

Self-Adjusting Claims

It is legal in California for employers that are self-insured to adjust their own workers’ compensation claims.  But the rules and laws are very strict.  The following is from the California Department of Industrial Relations website

“Self-insured employers are required to provide the same scope of benefits as an insurance company. Claims must be adjusted in California, and new self-insurers are required to use a licensed third-party administrator for their first three years of self-insurance. After that time, self-administration may be permitted.

“Everyone, both insurers and self-insurers are subject to audits by the Division of Workers' Compensation to verify that benefits are promptly and properly paid to injured workers.”

Unless the employer has been approved by the Office of Self-Insurance Plans (OSIP), self-adjusting claims is more like “self-dealing”.

Reach out to Cal-SARA 

If you suspect WCP fraud and you’re not sure what steps to take, you can visit our website to find contact information for your county district attorney’s office or the Department of Insurance.