Calif. Dept. of Insurance Improves Efforts in Fight Against Workers’ Comp Fraud

April 30, 2004

Since taking office in January, 2003, California Insurance Commissioner John Garamendi has worked to spur reform of the state’s broken workers’ compensation system. A top priority has been the effort to fight fraud and abuse in conjunction with local law enforcement, employers, and workers’ comp insurers.

The Bureau of State Audits on Thursday released a report concerning the fraud program as it was administered by previous Insurance Commissioners Chuck Quackenbush and Judge Harry Low. It also covers the first 12 months of Garamendi’s term. The report details the difficulties of confronting a hard-to-quantify problem with limited resources.

“I appreciate the thoroughness of this report,” said Garamendi. “It describes a number of findings and recommendations that we also have identified and acted upon this past year. Fighting workers’ compensation fraud is, and will continue to be, a top priority for this Department. I welcome the suggestions from this report as we work to expand and improve our efforts.”

The Commissioner noted that one of his first acts upon assuming office was to reorganize and reenergize the fraud investigation efforts of the Department. He enhanced the status of the Fraud Division, assigned a new director, and created a special Workers’ Compensation bureau that coordinates statewide efforts, and set out to improve coordination with district attorneys. He then directed the Fraud Division to focus its attention on workers’ comp fraud and to prioritize cases for maximum impact.

The efforts have reportedly had considerable success: Since Garamendi took office the fraud unit has opened more than 1,000 new workers’ compensation investigations and submitted 295 cases for prosecution. Local DA’s prosecuted 263 of those cases, which represent more than $54 million in chargeable fraud.

These efforts are also cost effective. In 2003 employers paid insurers approximately $21 billion in workers’ comp premiums. During that time, the cost of the Department’s effort to investigate and prosecute fraud amounted to $34.5 million, or less than .16 percent of the total insurers premium. Over the past five years the combined local and state fraud program costs expended in California amounted to about $150 million. During that same period more than $550 million in chargeable fraud was prosecuted.

“There is a tremendous return on investment in our fraud fighting efforts,” said Garamendi. “But we don’t plan to rest. I will continue to intensify our efforts and help bring more savings to our employers. We have done considerable work with the limited resources we have, and I plan to continue to push for more resources to devote to the fraud fighting effort.”

Additionally, the Commissioner has:

• Directed the fraud unit to improve its coordination with district attorneys.
• Publicized arrests and prosecutions for maximum deterrent effect.
• Sought stiffer penalties from the Legislature for those who commit workers’ comp fraud.
• Helped enact significant reforms that simplified the system and reduced opportunities for fraud and abuse.

“For employers who face premiums that have tripled and quadrupled in this dysfunctional system, fighting fraud is essential to bringing them hope that rates will come down,” Garamendi said. “Although it is extremely difficult to quantify the amount of fraud and abuse that takes place, it is clear that fraud has a serious negative impact on the system and employers. I am committed to using all resources at my disposal to combat this serious problem.”

A detailed version of the response to the audit report will be posted on the Department’s Web site at

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