California Report Details How to Reduce Fraudulent Claims

Commissioner Takes Action on Five Recommendations

Insurance fraud in California totals more than $15 billion each year, costing each resident an average of more than $500 per year. That’s the estimate published in a report recently issued by California Insurance Commissioner Steve Poizner’s Advisory Task Force, Blue Ribbon Review Committee. The report, “Reducing Insurance Fraud in California, details a number of recommendations to reduce fraudulent insurance claims in the Golden State.

The Task Force’s 18 recommendations were to:

• Establish a research program to evaluate and monitor the cost of all types of insurance fraud.
• Establish flexible criteria for allocating funds that take into consideration the extent of fraud being addressed by each program or project, and the expected impact of the program or project.
• Obtain additional funding sources for fraud investigations from assessments on insurance policies. As research becomes available, adjust revenue streams to make revenue proportional to the scope of the fraud problem in various lines of insurance.
• Extend the funding cycle for the District Attorney Local Assistance Grants for three years for all anti-fraud programs.
• Assign California Department of Insurance investigators to specialize in one area of insurance fraud for at least three years.
• Adopt more aggressive recruiting and retention practices, including pay upgrades, so that CDI can recruit and retain qualified investigators.
• Train insurer Special Investigative Units to provide better quality referrals. The Fraud Division should provide more feedback on the referrals received.
• The Fraud Division should communicate to insurance companies what to expect after a referral has been submitted.
• A forum should be created to allow insurance companies to share information about fraud patterns, rings and trends.
• Recognize companies that go beyond compliance with minimum SIU requirements for their greater commitment to fighting fraud.
• Conduct a statewide campaign to educate the public about the cost of fraud, its consequences, how to prevent it, and how to recognize and report it.
• Strengthen immunity provisions for companies that report suspected fraud and cooperate in investigations in accordance with the National Association of Insurance Commissioners Insurance Fraud Prevention Model Act.
• Increase revenue from policy assessments for CDI to administer and conduct investigations and for grants to district attorneys.
• CDI should acquire the software and hardware to implement a statewide investigative review program to store, analyze and extract evidence obtained from seized digital records and documents.
• Create a centralized case management database that allows participating law enforcement agencies to coordinate efforts and share evidence. Find trends, patterns and evidence by data mining within that database, and by associating the data with available public and commercial databases.
• Provide a central point within CDI for reporting and recording suspected fraud, including a tip hotline, with a direct forwarding to interested agencies.
• Create a Forensic Information Technology Center within the Fraud Division to support and improve the efficiency of the anti-fraud programs in California.
• Adopt a revised FD-1 form for the requirements of reporting suspected health care fraud.

“Our insurance system works fairly well, but it is burdened by people who cheat and commit insurance fraud. Insurance fraud is a growing problem in our society,” the Task Force wrote in its report. “If Californians could reduce the rate of insurance fraud by only 10 percent, it could save [the state] nearly $1.5 billion per year.”

Poizner said many of the recommendations require regulatory changes, legislative action or additional funding. Yet he nevertheless implemented five recommendations that he said could be adopted immediately, including:

• Creating a fusion center so law enforcement can share information more efficiently to identify emerging crime patterns.
• Better training for SIUs.
• Recognize insurance companies that go beyond compliance for their greater commitment to fighting fraud.
• Increase outreach efforts of CDI about the consequences of fraud.
• Adopt more aggressive fraud personnel recruiting and retention practices.

Poizner said he has made fighting fraud one of his “highest priorities,” and has directed his staff to examine the remaining proposals to see how to proceed next. “Insurance fraud is not a victimless crime,” he said.

According to the National Insurance Crime Bureau, insurance fraud is the second most costly crime in the country, with tax evasion being the most costly. Yet in California, the losses from insurance fraud exceed the estimated losses from tax evasion.

To date, CDI’s Fraud Division has four anti-fraud programs: automobile; property/casualty and life; disability and health care; and workers’ compensation.

A copy of the Task Force’s report can be found at www.insurance.ca.gov.

Topics California Fraud Claims