With a $2 billion state budget deficit looming, Arizona may become the first state in the country to abolish the anti-fraud unit of its Department of Insurance.
Should Arizona do that, insurance rates in the state could well rise, warned a group led by the Coalition Against Insurance Fraud.
Recently, Gov. Jan Brewer asked the state’s departments and agencies to submit to her proposals for how they could cut their budgets by 15 percent. The state faced a $2 billion shortfall in 2009, and a projected $3 billion shortfall in 2010.
The Department of Insurance, and its director, Christina Urias, proposed cutting the department’s four-person anti-fraud investigations unit, among other things. Until 2008, the unit numbered 14 persons, but that figure was reduced by previous cuts.
Cutting the fraud unit entirely would be short-sighted, said the group, which includes the National Insurance Crime Bureau and the International Association of Special Investigation Units.
Arizona’s fraud unit reportedly receives about 2,500 reports of fraud each year.
“Without a dedicated unit leading the investigating of these possible fraud cases, you are not going to have the investment from law enforcement to investigate cases,” said James Quiggle, the Coalition’s director of communications. “They’re not going to pickup the slack.”
If the insurance companies have to pay out more in the state, because fraud is not picked up, they are going to charge more in the state, Quiggle added.
Gov. Brewer has not yet given any word on what she is going to do with the proposals she has received, according to spokeswoman for the department, Erin Klug.
The state Legislature is meeting to discuss budget cuts. The governor also has proposed a temporary one-cent increase in the state sales tax.
Quiggle said that fraud investigation units in other state insurance departments have taken cuts, according to a survey the Coalition is conducting. However, Arizona is the only state considering eliminating the unit altogether.
“No other state has ever raised that as an issue,” he said.
Forty-seven states have anti-fraud units in their insurance departments, according to the Coalition.
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