Can Workers’ Compensation Claims Investigations Uncover Premium Fraud?

Adjusters conducting routine workers’ compensation claims investigations may notice inconsistencies that raise questions about an employer’s practices.

Known as premium fraud, the amount of premiums not being collected because of this misalignment is $25 billion annually, according to the Coalition Against Insurance Fraud.

Understanding how this type of misrepresentation may occur—and which indicators can surface during a standard claim review—puts adjusters in a better position to identify concerns that might need to be escalated to an investigative partner.

Types of Premium Misrepresentation

Insurance professionals may encounter red flags for three primary categories of premium misrepresentation: underreported payroll, employee misclassification, or experience modification (X-mod) evasion.

• Underreported payroll may involve failing to accurately reflect the total workforce size or wages paid. 
• Employee misclassification could occur when job duties are reported under lower-risk classifications than the work actually performed. 
• X-mod evasion can include business restructuring, name changes, or other tactics intended to distance a company from prior loss experience.

Adjusters conducting routine questioning could discover red flags related to one of three types of premium misrepresentation: underreported payroll, misclassification, or X-mod evasion.

When questions or inconsistencies emerge during standard claims reviews, adjusters should thoroughly document their findings and refer them to the carrier’s internal SIU team or a licensed investigator for further inquiry. Detailed documentation can include interview transcripts or recordings, as well as any other records obtained during the claim review process.

How Inconsistencies May Arise in Interviews

All claim files should have context and clarity, whether possible premium fraud is suspected or not. Verifying information related to payment, job details, and work-related injuries can accomplish this goal.

Payment Methods

Confirming payroll information should be part of a standard claim validation. But understanding how payment is issued-direct deposit, cash, paper checks, or digital payment platforms-could provide additional context.

Certain payment methods alone do not indicate wrongdoing, but inconsistencies between payroll reporting and actual compensation practices may warrant further clarification.

The way an employee is paid may indicate, but does not confirm, potential premium fraud. Cash, paper check, or the use of digital payment platforms could lead to the need for further investigation.

Additional follow-up questions may focus on:

• Inconsistencies related to business names listed on payment records
• Who makes payment method decisions
• How taxes are withheld based on the payment method

These details help ensure documentation accuracy rather than presuming misconduct.

Job Details

Insurance professionals also need to discuss the subject’s job duties to validate claim details. If misalignment with the insurance policy is suspected, more queries may be necessary.

Work-Related Injuries

Understanding injury reporting protocols is also essential for validating claims and identifying potential irregularities. Responses that suggest inconsistencies in these guidelines should be documented and referred for further review as appropriate.

When reviewed simultaneously, the details gathered about payment, job duties, and possible on-the-clock injury suspicions may start to suggest further investigation is needed.

Common Indicators of Possible Premium Fraud

Indicators of possible premium fraud can vary, but common red flags, according to the National Insurance Crime Bureau, include:

• Payroll discrepancies related to filed claims
• Mismatches between reported class codes and actual job duties
• Delayed reporting
• Claim frequency disproportionate to workforce size
• Claims reportedly occurring outside normal business locations

These indicators do not independently establish premium fraud but may justify additional review.

Workers’ comp adjusters should ask detailed and specific questions to help validate the facts of a claim. Those questions might lead them to discover potential red flags of premium fraud.

If potential premium fraud indicators surface during routine claims investigations, partnering with an experienced investigative provider allows for objective fact finding and detailed documentation.

As the leading national provider and single-source solution for investigative, SIU, and regulatory compliance needs, VRC Investigations is dedicated to integrity and collaboration. Our skilled investigators deliver comprehensive reports that confirm claim details, address potential inconsistencies, and enable our clients to make confident and timely decisions. Submit an assignment today to partner with VRC Investigations.

Alpine Intel’s content is meant to inform and educate readers using general terms and descriptions. They do not replace expert evaluations that determine facts and details related to each unique claim.