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Insurance Industry Defies Logic with Workers’ Comp Fraud Estimates

In recent months the California Department of Insurance has been trying to enlist “suspicious employers,” investigators, and “concerned co-workers” in the fight against insurance fraud by asking them to use social networks and “smart interviewing techniques that uncover information [leading] to prosecutions.”  The CDI is even holding workshops and distributing DVDs to reinforce their campaign.  Yet in the process, it’s been making some outrageous claims about the rates and cost of workers’ compensation fraud.

Recent discussions encouraging the use of tools like Facebook to combat fraud portray insurance companies as victims beset by California workers who “prey on the workers’ compensation system.” But in one rather ironic passage, the Department of Insurance tries to create the impression of a fraud epidemic in 2011 by citing the 103 individuals convicted of fraudulent acts “in and around the workers’ comp system” that year.  To me, 103 people in a state of 37 million didn’t seem like a very substantial percentage; but since I can’t do long division with numbers in the millions off the top of my head, I pulled out my trusty calculator to determine the rate of verified fraud in 2011 – based on the Insurance Department’s own figures:

Grand total: 0.0002%.

But just in case this doesn’t seem like sufficient cause for alarm, the California Department of Insurance reminds us that its figures don’t include cases that went undetected.  (So maybe the number is even bigger.)

The CDI’s argument goes from absurd to outrageous when it claims to have “new data”on the costs of insurance fraud last year: “the overall impact of fraud exceeds $1 billion annually, according to CDI estimates.”

One billion. With a “B.”

If this number bears any relation to reality, it might indeed support the Insurance Department’s suggestions of an epidemic. But again, I’m bad at unaided long-division when someone throws a number like one billion at me. So going back to that rate of convicted fraudsters, I once again run the figures through my calculator. And according to CDI’s allegations, costs would have to stand at an average of $9.7 million dollars per fraud case for this to be true.

For a brief moment, I considered the possibility that this was simply a typo – a scenario that’s hardly farfetched given the overtime hours that Public Relations folks have to put in for the Insurance Industry these days. But no: the California Department of Insurance reported similar numbers the previous year as well.

As countless events have shown over the past few years, banks and insurance companies do not have the best track record when it comes to accurately representing numbers — or the threat to national prosperity posed by American workers relative to the financial sector. Moreover, as studies by the American Association for Justice show, the lion’s share of criminal activity is committed by insurance companies, not by injured workers.

To learn more about how insurance companies put profits above people, please see our discussion of industry tactics used to deny injury claims for workers’ compensation injuries and personal injuries. And if you or someone you know needs help with an L&I claim, contact a Seattle Workers’ Compensation Attorney at Emery Reddy today. We also encourage workers to consult with an attorney prior to completing an Independent Medical Exam, which is often required by L&I for many workplace injury claims.

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