Synthetic Identity Fraud in Workers' Comp

What you will find below:

• Overview of Synthetic Identity Fraud
• How Fabricated Identities and Businesses Can Be Used in Fraud Schemes
• Warning Signs That May Indicate Synthetic Identity Fraud
• Why Identity Verification Matters Throughout the Claims Process

Synthetic identity fraud has nearly quadrupled in five years. What cost the financial sector an estimated $8 billion in 2020 had climbed past $30 billion by 2025, according to Reinsurance Group of America.

That growth has extended beyond banking. Insurers are seeing the same approach show up in claims, making synthetic identity fraud in workers’ comp more than a hypothetical scenario.

For claims professionals, it is a fraud type worth understanding on its own terms, including how it is created, how it can move through a claim, and where the warning signs tend to appear.

What is Synthetic Identity Fraud?

According to the Federal Reserve, synthetic identity fraud involves using a combination of personally identifiable information to construct a person or entity in order to commit a dishonest act for personal or financial gain.

In practice, this can mean pairing a real but dormant Social Security number with an invented name, birthdate, and address. The result is an identity that can appear legitimate on paper even though the information does not belong to one actual person.

The National Insurance Crime Bureau, in an analysis of claims submitted from 2022 through mid-2025, found this type of identity construction in nearly a quarter of the claims it reviewed for identity theft.

What is Entity-Based Synthetic Fraud?

The same approach can extend beyond individuals. Entity-based synthetic fraud involves a fraudster creating a fake business that exists only on paper. The business can then use falsified registration records and tax IDs to apply for coverage.

One common variation involves insuring synthetic employees under a workers’ compensation policy. The scheme can then involve claims supported by falsified medical bills and injury reports. Once the claims are paid, the entity is dissolved.

Example

Three men in Florida were sentenced in 2025 for running a workers’ compensation insurance scheme. Their companies sent fraudulent certificates of insurance to construction contractors, falsely claiming that hundreds of subcontractors were covered under the companies’ workers’ compensation policies.

The fraudulent certificates helped subcontractors win contracts with legitimate general contractors. The defendants then handled the subcontractors’ payroll through their own companies, keeping it off the books. They cashed the checks and paid the subcontractors directly without withholding or reporting payroll taxes. In total, the scheme involved more than $146 million in payroll before it was uncovered.

Signs that Indicate Synthetic Fraud

Once a claim involving a synthetic identity or fabricated business gets a closer look, certain details can raise questions. None of these signs alone proves fraud, but they can indicate that additional verification may be warranted:

• Social Security number linked to multiple names or birthdates
• Employer with little or no verifiable business history
• Claimant with no established employment history
• Claimant with no medical history before the current injury
• Identity or business that appears to exist primarily around the current claim

Final Thoughts

Synthetic identity fraud can be difficult to spot because the information in a claim may look legitimate on its own. The key is recognizing when pieces of a claimant’s or employer’s history do not line up and knowing when those inconsistencies warrant a closer look. Strong identity verification can help uncover issues that may otherwise go unnoticed until after a claim is paid.

Looking to stay informed on emerging fraud trends? Connect with our experts today.

Sources:

Federal Reserve Bank of Boston. “Synthetic Identity Fraud Defined.” FedPayments Improvement, fedpaymentsimprovement.org/strategic-initiatives/payments-security/synthetic-identity-payments-fraud/synthetic-identity-fraud-defined/.

Internal Revenue Service. “Three El Salvadoran Nationals Sentenced for $146 Million Construction Payroll Scheme That Defrauded the IRS and Workers’ Compensation Insurers.” IRS Criminal Investigation, 29 July 2025, www.irs.gov/compliance/criminal-investigation/three-el-salvadoran-nationals-sentenced-for-146-million-construction-payroll-scheme-that-defrauded-the-irs-and-workers-compensation-insurers.

Journal of Insurance Fraud in America. “Synthetic Fraud: With Synthetic Fraud Already in Their Ecosystem, Insurers Need to Think More Like Banks.” Coalition Against Insurance Fraud, 6 Dec. 2024, insurancefraud.org/publications/jifa-synthetic-fraud/.

National Insurance Crime Bureau. “NICB Projects 49% Rise in Insurance Fraud Linked to Identity Theft in 2025.” NICB, 2 Sept. 2025, www.nicb.org/news/news-releases/nicb-projects-49-rise-insurance-fraud-linked-identity-theft-2025.

Reinsurance Group of America. “The Fraud Fight’s New Frontier: Synthetic Identities and an AI Arms Race.” RGA, 18 Aug. 2025, www.rgare.com/knowledge-center/article/the-fraud-fight-s-new-frontier—synthetic-identities-and-an-ai-arms-race.