California Insurance Fraud and How Employers Can Prevent It

The goal of insurance is to help people protect what’s most important to them: their homes, their vehicles, their health, their businesses.

So when someone commits insurance fraud, it is far from a victimless crime.

And California is no stranger to insurance fraud.

In the last month alone, major news stories have broken about a father-son workers compensation fraud scheme and an auto insurance fraud scheme, prompting California Insurance Commissioner Dave Jones to describe the Golden State as “ground zero for auto insurance fraud.”

And who pays for it? Consumers, “when insurers pass along their fraud losses through higher premiums,” he added.

Workers compensation seems particularly fraught with fraud problems. In the United States, it’s a $30 billion annual problem. In California alone, work comp fraud costs the state $1-3 billion every year.

California Workers Comp Fraud Issues

Employers are always working to eliminate workers comp fraud on their workers’ part—but it’s important to prevent it on the employer side, too.

Less than two weeks ago, a California father and son pleaded guilty to four felony counts for their role in a $400,000 insurance fraud scheme that denied workers compensation insurance and medical care for injured workers. The pair concealed injuries their workers sustained and refused to pay for medical treatment or provide other benefits the injured workers were entitled to.

In other cases, employers are found guilty of misclassification—is an illegal attempt to avoid paying full workers compensation premiums, taxes, wages, or other expenses. According to the Economic Policy Institute, 10-20 percent of businesses misclassify at least one employee as an independent contractor.

How to Prevent Classification Errors

Misclassification can be an honest mistake. Companies can misclassify employees as independent contractors, or misclassify employees in high-risk positions as working in lower-risk positions. How? Well, these classifications can be difficult to determine accurately.

TIP: If you’re not sure all your employees are correctly classified, contact an expert! Ask your accountant, your attorney, and your insurance agent for their professional insights. Above all, make sure you classify your employees correctly. Even if you were not purposely committing fraud, you’ll still be held accountable for it.

There’s another level of worker classification to consider, and that comes into play on payroll records. In most trades, there are two workers compensation classifications for payroll reporting. The end result is that employers pay lower premiums for workers whose hourly wages rise above a certain level. But qualification for those low-rate classes relies on accurate, and verifiable, payroll records.

For more than 35 years, Insurance Partners, Inc., has been providing quality protection for individuals, families, and businesses, helping people make sense of their insurance needs so they can look forward to a brighter, more secure future. If you have questions about your insurance coverage, contact us.

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