1. THE UNINSURABLE RISK 1

2. FRAUD THE UNINSURABLE RISK 2

3. o The Workers' Compensation Fraud Program was established in 1991. The legislature made workers' compensation fraud a felony, required insurers to report suspected fraud, and established a mechanism for funding enforcement and prosecution activities. The legislation established the Fraud Assessment Commission to determine the level of assessments to fund investigation and prosecution of workers’ compensation insurance fraud.Fraud Assessment Commission o Funding for the program comes from California employers who are legally required to be insured or self-insured. 3

4. CALIFORNIA FUNDING FOR SIU For the 2015-2016 Fiscal Californians were awarded 34.9 million in grants to assist law enforcement in fighting workers’ compensation fraud. CountyFY 2015/16 Workers' Compensation Insurance Fraud Grant Funding Alameda$1,511,933 Amador$386,479 Butte$76,000 Contra Costa$850,000 El Dorado$271,428 Fresno$1,236,000 Humboldt$200,000 Imperial$163,495 Kern$1,058,000 Kings$263,875 Los Angeles$6,458,643 Marin$245,648 Merced$174,000 4

5. Monterey$660,000 Napa$135,500 Nevada$73,525 Orange$3,966,000 Placer$175,000 Riverside$2,020,000 Sacramento$910,000 San Bernardino$2,113,943 San Diego$4,990,459 San Francisco$713,943 San Joaquin$472,972 San Luis Obispo$54,419 San Mateo$691,588 Santa Barbara$340,420 Santa Clara$2,626,811 Santa Cruz$118,223 Shasta$154,955 Siskiyou$52,992 Solano$175,742 Sonoma$66,800 Tehama$110,248 Tulare$499,258 Ventura$683,465 Yolo$250,067 TOTAL$34,951,831 5

6. FRAUD IN THE WORK PLACE o Terms o Definitions o Provisions o Legislation o Fraud o Red Flags o SIU o CA Insurance Code4 1877.3. 1871.4 o Authorized Governmental Agency 6

7. WHAT IS WORKERS' COMP CLAIMS FRAUD? The Claims Fraud Statue: : o Insurance Code 1871.4 o Simply stated: When someone knowingly lies to obtain some benefit or advantage, or cause some benefit that is due to be denied. o Penal Code 550 (b) (3) o Concealing or knowingly failing to disclose the occurrence of an event that affects a person’s benefits – whether that be entitlement, amount or duration – may constitute workers’ compensation fraud. = difference to the determination of benefits. 7

8. PREMIUM FRAUD Premium Fraud Statutes o Insurance Code 11760 o Insurance Code 11880 o Simply Stated: When someone knowingly lies to obtain a W/C policy of Insurance at less than the proper rate, cost or premium. 8

9. WHO CAN COMMENT FRAUD? o Employees o Employers o Providers ( i.e. Doctors, Chiropractors, Voc. Rehab. Counselors, copy Services Pharmacy’s, Interpreters, etc.,) o Attorneys o Insurance Company Employees o Brokers and Agents o Anyone who touches the Insurance Industry 9

10. TYPES OF INSURANCE FRAUD o Premium /Policy o Health care Fraud o Property and Casualty Fraud o Auto Insurance Fraud o Employer Claims Fraud o Workers Compensation Fraud o Broker/Agent o Provider Fraud o Claimant/Applicant ( Auto, Property and Casualty,workers compensation, Medi-care/ Medi -Cal – All Lines of Insurance have been victimized ) o Attorney Fraud o Insurance Company Employee Fraud 10

11. SUSPECTED FRAUD REPORTING IS LEGALLY MANDATED ….. o Required by Insurance Code 1877.3 o Who has the duty to report:  Insurers admitted to transact Insurance in California.  State Compensation Insurance Fund  Self-insured employers  Third party administrators  Licensed rating organizations. 11

12. SUSPECTED FRAUD REPORTING…… 1.Must report when you know or reasonably believe you know the identiity of a person or entity who you have reason to belief committed a fraudulent act relating to Insurance. 2.Must use prescribed forms ( FDI) - Called Suspected Fraudulent Claims Report (SFC) 3.Must state on the notice the basis of the suspected fraud. 4.Report Filing date not to exceed 30 days from day on which the duty to report arose. 12

13. LIMITED CIVIL IMMUNITY FOR REPORTING Insurance Code 1877.5  Insurer reports to Authorized Governmental Agencies  In Good Faith  Without Malice  Have Reasonable Belief  Warranted by known facts  Obtained by reasonable Efforts 13

14. SPECIAL INVESTIGATION UNIT 14

15. DUTIES OF CLAIMS EXAMINERS In 1994 California State Rules and Regulations mandated all Insurance Carriers to formulate a Special Investigation Unit.. Many Insurance companies promoted and trained Claims Examiners in The Art of detecting, investigating and management of fraudulent claims. What is the Role of the SIU Investigator?  To conduct further research into the suspected fraudulent claim.  If the matter if found to be potentially fraudulent, then the facts and misrepresentations are documented.  The Facts supporting the suspicion or allegation of fraud are referred to the proper authorities. 15

16. HOW IS AN INVESTIGATION STARTED? Each SIU Investigator must answer two main questions: 1.Is this situation of potential fraud or a case of abuse? 2.If the claim is potentially fraudulent, can it be proven? To prove fraud, four elements of fraud have to be established. Definition of Abuse A.Abuse is any practice that uses the Insurance system in a way that is contrary to either the intended purpose of the system or law. Abuse includes some behavior that is criminal and some that is not. Criminal abuse is call fraud. Typical Abuses of the system include: 1.Magnification of complaints or disability that falls short of an outright lie. 2.Overutilization of benefits and services 16

17. HOW IS AN INVESTIGATION STARTED? 3. An Employer failing to advise it’s insurance carrier that additional classifications have been added to the business for coverage purposes. 4. Filing a claim that may not be compensable. 5. Violating the rules of the Insurance system. 6. Making a mistake on an estimate of future payroll. The examples listed above may be wrong and constitute abuse but his behavior may not rise to the level of criminal fraud. It can be dealt with in other ways: Through claims handling, underwriting, or the Workers compensation Appeals Board. Also, evaluating whether or not a workers’ compensation claim is compensable is not the test to determine whether the claim is fraudulent. Specific Elements of fraud must be present. 17

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19. WHAT ARE THE ELEMENTS OF FRAUD? Definition of Fraud B. Fraud occurs when someone knowingly lies to obtain some benefit or advantage to which they are not otherwise entitled, or to deny some benefits that is due and to which someone is entitled, or to obtain a insurance policy at less than the proper rate, cost or premium. C. Elements of Fraud: 1.There is always a false representation – THE LIE 2.The LIE must be knowingly made. ( Depositions help prove of penalty of perjury) 3.The LIE must be made for the intent of obtaining a benefit that is not due, denying a benefit that is due or obtaining insurance at less that the proper rate, premium, or cost. 4.The LIE must be material. In other words, the LIE must make a difference. Ask the Question, “ if the truth had been told, would anything have been done differently?” 19

20. LET’S INVESTIGATE……… 20

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