Why Are You Wasting Money on Pointless Workers’ Comp Claim Investigations?

Payers must devote more attention to identifying which cases merit investigation and which tactics produce the best results.
By: | November 12, 2018 • 6 min read

A clearly-defined strategy for combating workers’ compensation claimant fraud is essential for employers wanting to avoid the frustration of wasting dollars on investigations that go nowhere.


A substantial amount of anecdotal evidence exists suggesting that investigations will fail without reliable criteria for when to hire investigators, how surveillance should be conducted and whether to submit cases for prosecution, experts said. A tactical strategy for pursuing suspected fraud, in contrast, increases the focus on cases truly meriting the assignment of resources while avoiding squandering them on faulty procedures.

The reasons fraud investigations fail vary, observers said. An employer’s hunch can prove wrong. The worker may be malingering or engaging in behaviors that don’t meet a legal definition of fraud. Or investigators bungle inquiries.

Shaddi Kamiabipour, senior deputy district attorney in the Orange County, California District Attorney’s Insurance Fraud Unit, said most workers’ comp claimant fraud cases referred to her office for prosecution fail because they “weren’t good referrals.” Investigators neglect to ask basic questions to establish the worker committed a crime by lying.

“I have situations where the person who investigated didn’t do a good job,” Kamiabipour said. “They messed it up or mishandled it and they want us to file a criminal case and that is not happening.”

Mario Pecoraro, president and CEO, Alliance Worldwide Investigative Group Inc.

The ultimate goal of employers choosing to investigate claims may not be criminal prosecution, however. Many investigate to stop the undeserved payment of disability claims, without pursuing criminal prosecution.

But challenges exist for those wanting to prosecute even when investigation surveillance successfully produces evidence of wrongdoing, said Mario Pecoraro, president and CEO at Alliance Worldwide Investigative Group Inc.

“One frustration employers have now is a lot of cases that go before various [state] workers’ comp systems are not prosecuted or nothing happens to the employee,” Pecoraro said. Investigators “get really good surveillance, but nothing happens because most states are pro-employee.”

Standardization Is Lacking

Regardless of the reason, wasteful investigations cost employers whether they’re insured or self-insured.

Yet employers are on their own to develop successful investigation strategies based on their corporate culture, messaging they want delivered to their workforce and budget priorities, among other factors.

Industry guidelines on conducting investigations and what defines good outcomes are lacking, said Garrett McGinn, partner and director of research and development at DigiStream Investigations.

“The problem is, overall, the industry needs to come up with quantifiable metrics as to what is a good investigation, what is a good case outcome, and come to an agreement as to what are the standardized referral criteria for investigations,” he said.

The investigations industry is not even clear on what workers’ comp fraud costs employers nationwide.

Reports frequently credit the National Insurance Crime Bureau for estimating that workers’ comp fraud generates anywhere from $8 billion to tens of billions of dollars in annual losses. But NICB doesn’t track that number, according to its spokesman.

“It’s anybody’s guess what fraud numbers actually are,” he said.

“The problem is, overall, the industry needs to come up with quantifiable metrics as to what is a good investigation, what is a good case outcome, and come to an agreement as to what are the standardized referral criteria for investigations.” — Garrett McGinn, partner and director of research and development, DigiStream Investigations

No question though, claimant fraud can be costly and even a rampant problem for individual employers.


One client with manufacturing and warehouse workers, for example, asked investigators to help stem a widespread abuse and fraud problem, McGinn said.

To change the workplace culture, investigators made their presence obvious by recreating and photographing every lost-time claim accident. They talked to supervisors about each of those incidents. It sent the message that the employer would no longer tolerate the abuse.

“That cut their claims frequency in half within nine months,” McGinn said.

“Employers who have an out-of-control fraud problem really don’t have a choice” but to engage in a strategy of “increasing the perception of detection,” he elaborated.

Some employers, particularly self-insured entities, will “draw a line in the sand,” by pursuing fraud prosecutions even knowing they will not prevail in court, said Barry D. Bloom, principal, The bdb Group. They want to send a message that they will not tolerate workers’ comp shenanigans.

Other employers estimate that for them, claimant fraud occurs in such a tiny percentage of cases that they prefer altogether avoiding the frictional expenses generated by investigating any claims.

But for employers wanting to successfully combat even single incidences of fraud, tactically developing threshold criteria for which cases to investigate and how to investigate them helps ensure the outcome is worth the cost, McGinn explained.

Start, for example, by weighing broad financial considerations, such as deciding to investigate only lost-time claims, McGinn advised. Comparing claims exposure levels to your investigative budget might lead to foregoing some investigations.

In addition to meeting a certain financial threshold, look for red flags like recent disciplinary action, rumors of layoffs, sick-leave abuse or a negative performance review.

Such tactics allow directing more resources to fewer cases, which is often beneficial, McGinn said.

Garrett McGinn, partner and director of research and development, DigiStream Investigations

DigiStream claims data reveals, for example, that surveillance conducted over five days is 20 percent more productive — based on minutes of video evidence obtained per day of surveillance — than claims conducted over two days, McGinn said.

“But most adjusters, risk managers and work comp coordinators are ordering only two days,” he said.

The efficacy of investigations is further diluted when claims payers divide the two days of surveillance requested into four half days or smaller timeframes. Their “spread betting” leads to paying more for less productive results, McGinn said.

Combining other investigative tactics, such as reviewing social media, before conducting surveillance, also increases an investigation’s efficacy, sources said.

Neglecting to review available information before ordering surveillance can be wasteful, said Mario Pecoraro at Alliance Worldwide Investigative Group.

“It’s about the strategy around the investigation,” Pecoraro said. “I think that is where a lot of companies go wrong. They don’t have a strategy around the type of investigation to use, when to use it and how to best use it. They just throw money at it.”

The Shift Toward Advocacy

An “advocacy movement” spreading among workers’ comp payers could address some investigation challenges claims payers currently experience, Pecoraro added.

Some advocacy proponents espouse questioning fewer claims and quickly compensating them to allow paying greater attention to truly difficult cases.


Claims payers need to exercise caution, however, and not go too far in eliminating practices for discouraging fraud, sources said.

But advocacy could also help employers because once prosecutors learn that practicing employers go above and beyond to treat their injured workers fairly, and they refer only egregious cases, prosecutors may be increasingly willing to pursue cases, Pecoraro said.

“It’s going to shift and help with prosecution,” he said.

Employers may also get a boost from modern claims technology, which is helping make better selections about which cases are referred to investigators, said Pat Walsh, executive VP and chief claims officer at York Risk Services Group. &

This article is part of a three-part series on The Changing Landscape of Workers’ Comp Fraud.

Why Physician Fraud Rings Are a Major Workers’ Comp Issue And What You Can Do About Them explores the perils of provider fraud and the changing landscape of the obstacles investigators face.


Employer Premium Fraud Is Hurting Everyone — Including Honest Businesses addresses the various types of premium fraud, and why insurers are reluctant to investigate most offenders.


Why Are You Wasting Money on Pointless Workers’ Comp Claim Investigations? dives into the need for industry-wide investigative standards and how the trend toward worker advocacy is impacting the way employers approach worker fraud.

Roberto Ceniceros is senior editor at Risk & Insurance® and chair of the National Workers' Compensation and Disability Conference® & Expo. He can be reached at [email protected] Read more of his columns and features.

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.


Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.

R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.


We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?


Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.


Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now and where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.


More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]