Defeating Workers’ Compensation Fraud—How Agents Can Educate Clients to Prevent Fraud 

• By: Nancy Germond
• December 11, 2025

Workers’ compensation fraud occurs when individuals manipulate the system to receive benefits they are not entitled to, or business owners provide inaccurate rating information to reduce their premiums.  

These actions ultimately increase insurance costs for insurers and employers. Fraud typically falls into four main categories.  

1. Claiming false injuries: An employee reports an injury that never occurred or happened outside of work. 

2. Malingering: Employees may build up or invent symptoms to remain off work or build their medical treatment. 

3. Provider fraud. 

4. Employer fraud. 

1. False Injuries 

Often called “Monday morning injuries,” the employee may report a claim they allege occurred “a few weeks ago,” stating, “I didn’t realize I was injured at the time.” These types of claims are challenging to investigate because there is rarely video footage or witnesses willing to come forward.  

2. Malingering  

Malingering is less obvious but still damaging, often because employees don’t see these actions as fraudulent. In my experience as a workers’ compensation manager, the biggest red flag in any workers’ compensation claim is ongoing conflict between the injured employees and their supervisors.  

Most adjusters will routinely ask on first employer contact, “Hey, is this employee on probation, or are there conflicts with their supervisors or with others in their department?” If so, adjusters usually keep a closer watch on these claims.  

Malingering examples can include the following. 

• Exaggerated injuries: Employees magnify symptoms to remain out of work longer. 

• Over-treatment: Workers manipulate healthcare providers to unnecessarily extend medical treatment and leave. 

• Strategic appointments: Scheduling medical visits at times designed to avoid work responsibilities. 

As an insurance agent, your clients are at the forefront of identifying and addressing fraudulent claims. If you help educate your clients about the need to address suspect claims with adjusters, this not only protects insurance carriers and employers but also ensures that adjusters handle legitimate claims effectively and efficiently.  

Often, employers hesitate to contact the adjuster until the claim goes completely sideways. Then, it may be too late. Encourage your clients to hold, at a minimum, quarterly meetings with their claim reps on all open work comp claims. They should immediately contact the adjuster if they suspect the employee is malingering or being dishonest.  

3. Provider Fraud 

Medical providers or legal providers often become involved in the workers’ compensation claims process. Some providers may attempt to “work the system” to overbill or provide their clients with unneeded services.  

Here are some of the top areas of provider fraud.  

• Often in conjunction with an attorney, medical providers may bill for services either unnecessary or not provided. These services may be inflated, for example a brief appointment coded as complex, or unneeded such as MRIs or unneeded or unattended physical therapy.  

• Medical mills operate with the help of unscrupulous attorneys, who may pay that attorney for referrals. 

• Upcoding includes billing for services not provided or for a more expensive service than the treatment provided.  

These system abuses not only increase medical costs, but it can also delay returning to work and make a simpler injury into one that appears more complex.  

4. Employer Fraud 

While the emphasis on workers’ compensation fraud is typically about employee fraud, employer fraud also occurs. It is vital that agents, when they detect abnormalities in employer data, dig further to avoid appearing complicit in helping employers reduce their premiums.  

Employer fraud can take any of these avenues. 

• Premium fraud – Probably the most overlooked fraud, this includes underreporting wages to decrease premiums. For example, paying employees cash rather than including these funds in payroll means the carrier is unaware and unable to collect the correct premium for the exposure. Payroll includes tips, bonuses and other cash outlays.  

• Misclassifying employees – Categorizing a salesperson solely as a salesperson who, occasionally, picks up a hammer and works on a roof, is fraud. Instead, the employer should track payroll by the hours the employee works at each class code. With today’s labor shortages in the trades, these types of multiple duties are increasingly common.  

• Failing to obtain workers’ compensation when legally required to do so. This failure often includes hiring subcontractors and not reporting that exposure to the carrier.  

• Denying legitimate claims – I once had my boss refuse to let me report an injury to a worker who had late reported a toe injury, which resulted in an amputation. The employee always has the right to report a claim directly to the state agency; however, it is unethical and possibly illegal to refuse to report an employee injury to the carrier.  

Educating your clients about these tactics can help alert them to potential fraud.  

The Agent’s Role in Fraud Prevention 

Insurance agents play a critical role in mitigating fraud by educating employers, identifying fraud risks and facilitating communication between stakeholders. Here’s how agents can excel in this role.  

Educate Employers on Fraud Risks 

Your clients may be unaware of how workers’ compensation fraud occurs or how to prevent it. As their trusted advisor, you can educate them on the following.  

• Training: Educate clients on recognizing red flags, such as inconsistent injury reports or employees who resist communication.  

• Reporting: The most critical factor in a successful claim is immediately notifying the carrier of the loss. 

• Share best practices: Help employers implement measures like thorough incident reporting and return-to-work programs. 

• Stress the financial impact: Explain how fraud inflates premiums and increases experience modification factors, affecting your client’s bottom line. It also hurts 

 your agency’s profitability if the client avoids paying the proper premium.  

Ensure Proper Claims Procedures 

Fraud prevention starts at the claim’s inception. Encourage your clients to do the following. 

• Request the carrier always complete “three-point contact” on new claims. Adjusters should immediately contact the injured employee, the treating physician (usually by receipt of a medical report) and the employer. 

• Document thoroughly. Detailed record-keeping helps identify inconsistencies that may indicate fraud. 

• Report suspicious activity promptly. Ensure your clients know how to flag suspicious claims to their carrier or adjuster. 

Identify the Red Flags of Potential Fraud 

Familiarize yourself and your clients with common fraud indicators, such as the following.  

• Timing of the injury: Claims reported on a Monday or after an employee’s vacation could signal non-work-related injuries. 

• Unwitnessed incidents: Injuries with no witnesses or vague accident descriptions merit closer scrutiny. 

• Resistance to temporary-modified-duty: Employees who refuse modified-duty positions may be attempting to extend time off unnecessarily. 

When your clients actively monitor and ask the adjuster to address these warning signs, you can help prevent the escalation of claims.  

Foster Strong Collaboration with Adjusters 

Effective communication between agents, employers and adjusters is critical for managing claims successfully. Facilitate this by doing the following.  

• Request continuity. Advocate for your clients to have consistent, experienced adjusters who understand your clients’ business operations. 

• Encourage regular claim updates. Frequent check-ins with adjusters can prevent misunderstandings or delays. 

• Build relationships. Strong rapport with adjusters can expedite investigations and ensure seamless claim processing. Thanking adjusters when they go above and beyond can help build a strong rapport.  

Tips to Help Employers Mitigate Fraud 

Here are some strategies you can discuss with your clients to help them minimize fraud risk while supporting the prompt reporting of injuries.  

Develop a Proactive Workplace Culture 

Encourage your clients to create a cultural climate where employees feel supported and valued. This climate can reduce motivation to manipulate the system. Key steps include the following.  

• In the employee onboarding process, employers should set the expectation that if injured, an employee will receive immediate and excellent medical care. However, employees must report injuries to their supervisors or through human resources promptly (ideally, on the same day). They will also work at temporary modified duty whenever possible, even if it means working outside their regular duties to honor their medical limitations. 

• Employers should establish a stay-at-work policy. Provide temporary modified duty options to keep injured employees engaged during recovery. (Some of today’s carriers may not insure employers without this policy in place.) 

• Set a tone of fairness and transparency. Employers should consistently care for injured workers while emphasizing the importance of employee cooperation. 

Enhance Claim Oversight 

By staying actively involved in the claims process, employers can reduce fraud and aid in modified duty assignments and problem-solving. The old paradigm, “We don’t want them back until they’re 100%” will no longer work in today’s workplace culture. Indeed, this attitude may violate the Americans with Disabilities Act.  

• Set a regular (at least quarterly) meeting with adjusters to discuss all open workers’ compensation claims, especially those injuries that seem to linger. Monitor the injured worker’s progress and treatment. Request updates from adjusters that include current medical progress reports. 

• With stalled claims or complex claims, request the adjuster employ a nurse case manager. These professionals oversee medical care and can significantly streamline the treatment and recovery process. 

• Understand that only those with a “need to know” should access injured employees’ medical records. Supervisors need only have access to restrictions on work status so they can help in modified-duty accommodation.  

Request Your Insurer Use Surveillance and Other Forms of Intelligence When Appropriate 

While often a last resort, surveillance can be an effective tool when your clients suspect fraud or malingering. Employers should work closely with carriers to decide when the adjuster should assign surveillance and handle any findings strictly in confidence with those who need to know, such as senior management.  

Further, there are firms devoted to data intelligence, such as searching social media to check the claimant’s activities. Judges will typically admit this evidence when properly obtained. Employers should never undertake these intelligence activities but can suggest them to the adjuster.  

Respond Decisively When the Injury is Fraudulent 

While difficult to prove, taking steps to minimize fraud sends a message to all employees that: “We won’t tolerate attempts to manipulate the claims system.” 

• If the employer suspects fraud, they should work closely with their carrier to show their commitment to protecting resources. 

Strengthening Your Expertise as an Agent 

To succeed in addressing workers’ compensation fraud, agents can work closely with their carriers to stay abreast of current trends. If an agent suspects their clients are “cooking their books” to avoid paying premium, it is not only in the agent’s best interest to discuss this with their client, but it is also the most ethical route to take.  

You may ultimately decide you are not going to keep that client. Be careful how you end that client relationship. If you accuse them of any type of dishonesty, you could be running up against a personal injury claim. 

Copyright © 2025, Big “I” Virtual University. All rights reserved. No part of this material may be used or reproduced in any manner without the prior written permission from Big “I” Virtual University. For further information, contact nancy.germond@iiaba.net.