A Premium Fraud Bill Just Stalled in Sacramento — Here's Why Carriers Should Still Pay Attention
From the Desk Of:
President, Managing Attorney
Certified Specialist Workers' Compensation Law
The State Bar of California Board of Legal Specialization
A bill that would have given insurers a new tool against premium fraud just got shelved for the year, but the idea behind it isn't going away. Carriers should treat this as a preview of where fraud-reporting obligations are headed, not as a closed file.
SB 536 would amend Insurance Code section 1877.3 to require an insurer or licensed rating organization that suspects premium fraud to notify the Employment Development Department, in addition to the local district attorney and the Department of Insurance's Fraud Division, which are already required recipients. The idea is straightforward: let insurers cross-check what an employer reports to them against what that same employer reports to EDD for payroll tax purposes. A mismatch is a strong signal of underreported payroll — and underreported payroll is exactly how employers shrink their workers' comp premium while shifting risk onto the pooled system.
SB 536 passed the Senate on June 4, 2025. But on August 13, 2026, the Assembly Appropriations Committee sent it to its suspense file with a recommendation to hold it in committee. In Sacramento, a bill held in suspense at this stage in the session is effectively dead for the year, even though it isn't formally killed. The committee didn't say the idea was bad. It said the fiscal and administrative cost of routing new notifications through EDD wasn't worth advancing right now.
Why the reasoning still matters for claims and costs
Premium fraud isn't a victimless paperwork issue. Every employer that underreports payroll to lower its premium is getting subsidized by every other employer paying an honest rate, because the pooled system's overall cost doesn't shrink just because one employer's reported number did. WCIRB has been flagging rising system costs all year, and premium fraud is one of the few cost drivers that regulators can address through better information-sharing rather than through rate increases.
SB 536's core mechanism — cross-referencing payroll data across state agencies — is a low-cost, high-leverage idea that will likely resurface, either as a reintroduced bill next session or folded into a broader anti-fraud package. The fact that it stalled on cost grounds rather than substance means it has a real chance of coming back.
What to do now
Don't change your fraud-reporting practices based on a bill that didn't pass. But if your organization handles a meaningful volume of California premium audits, start tracking payroll-reporting discrepancies now, the way SB 536 would have required, even without a legal mandate to do so. Insurers with strong internal fraud-referral practices are the ones best positioned to move fast if a version of this bill does become law next session. And if your government affairs team tracks Sacramento bills, put SB 536 on the watch list for 2027 — bills held in suspense on cost grounds are exactly the kind that come back once the fiscal picture changes.
Law Offices of Parker & Irwin
This post is for general information only and is not legal advice.
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