Best time in history for the staffing industry – except for WC Premium Fraud

Staffing industry analyst firms such as Staffing Industry Analysts and Precision Global Consulting, among others, are forecasting record growth for the global staffing industry with the U.S. market dominating this growth pattern.  Tricom, a global staffing agency, views 2022 as “The Golden Age of Opportunity:  2022 Staffing Forecast.”  

As encouraging as all these forecasts are, they do not appear to take into account what may be the greatest challenge to staffing agencies and PEOs:  workers’ compensation premium fraud. Especially in California.

Workers’ Compensation Premium Fraud in California

Workers’ Compensation Premium (WCP) fraud in California, and across the nation, is not a new phenomenon.  California has almost two dozen penal code statutes authorities use to prosecute violators.  These codes have been on the books for decades.  Proving criminality is a challenge because district attorneys must prove intent, which can be a difficult threshold to reach.  There are other reasons these prosecutions are a challenge.  One of the biggest challenges is identifying the crime, and then beginning the investigations.  This is where Cal-SARA comes in.  Before touching on Cal-SARA’s role addressing this problem, let’s first look at the scale of the challenge in California.

California’s Workers’ Compensation Institute reported that in 2020 $10.18 billion was collected in workers’ compensation premiums (aka:  direct written premiums).  The Coalition Against Insurance Fraud put the national cost of WCP fraud at $23 billion in 2021.  We estimate California’s share of this fraud to be $3.5 billion based on the state’s 15% share of U.S. gross domestic product (GDP).  Comparing these figures, it appears that the value of WCP fraud in California is roughly equivalent to 35% of all workers’ compensation premiums collected each year.

What Can Legitimate Agencies Do About WCP Fraud? 

To help themselves, legitimate staffing agencies, PEOs and insurance brokers can report suspected cases of WCP fraud.

Legitimate businesses can also join Cal-SARA to build a strong industry voice to combat WCP fraud and help create and maintain a vibrant and competitive marketplace for their services. Legitimate companies know what’s happening to them when illegitimate businesses commit WCP fraud:

• They gut the profits by dropping rates below cost and set wrong expectations for customers; 
• They ruin the capacity of insurance companies to adequately support the marketplace; and
• They confuse the situation by motivating lawmakers and regulators to consider legislation that would be harmful to the market, rather than helpful (e.g. AB 2614).

Assembly Bill 2614 (AB-2614) was introduced into the California Assembly in February 2022.  As originally drafted it would prohibit staffing agencies from obtaining workers’ compensation insurance for their employees and pass that obligation onto the staffing agency clients.

Fortunately, this bill has been referred to the Commission on Health and Safety and Workers’ Compensation. The Commission has until January 1, 2024 to submit its report.  So, we have time to get this right.  But the message should be clear: more legislative oversight is warranted to prevent the staffing industry from being scapegoated for bigger problems and challenges.

Cal-SARA can be considered:

• A think tank of industry experts working to create and sustains a pro-competitive market
• A non-profit with self-governance and professional management
• A collective voice on behalf of honest agencies
• A vehicle for promoting more awareness of WCP fraud and for reporting it in the right ways to the right authorities for action

Cal-SARA’s plan includes:

• Bringing together the brightest our industry has to offer
• Becoming the reporting agency for illegal workers compensation activity
  • Make sure it is properly reported 
  • Aggregate the data to push government enforcement
  • Shame the corrupt businesses 
  • Report insurance professionals who support the gray market
• Support and put pressure on enforcement 
  • DLSE, WCAB, WCIRB, Attorney General to do what they are empowered to do
• Shame the criminals, the customers who use them, and politicians who don’t prosecute them

Conclusion

Don’t wait for someone to protect your industry and your interests.  Be part of a collaborative solution and don’t let the bad actors take your bright business opportunities from you.