Insurance Fraud Referrals Up by 11% in Minnesota in 2020

The number of insurance fraud investigations in Minnesota in 2020 rose by 11% compared with 2019, according to the state’s primary law enforcement agency focused on white collar crime.

The Minnesota Commerce Fraud Bureau, a division of the Minnesota Department of Commerce, said it began investigations into 3,600 suspected fraud cases in 2020, up from the 3,236 investigations conducted in 2019. The 2020 number represents a 57% in case referrals over the past five years.

Criminal prosecutions that resulted from these CFB investigations had a $6,811,369 economic impact on the state, the CFB said in its annual report.

The CFB is the largest white collar crime unit in the Upper Midwest. With 16 full time law enforcement officers, the CFB is the sixth largest state law enforcement agency focused on investigating insurance fraud, behind California with 297, Florida with 259, North Carolina with 40, Virginia with 25, West Virginia with 22.

In 2020, the five largest areas of suspected fraud referred to the CFB were: automobile insurance (2,113 cases); health insurance (478 cases); homeowners insurance (353 cases); workers’ compensation insurance (131 cases); and agent and broker fraud (101 cases).

During the five-year period from 2016 through 2020:

• There was significant increase in the number of automobile insurance fraud cases referred to CFB, with case referrals increasing by 177% during that time.
• The number of health insurance fraud cases trended downward, with a 28% decrease in cases referred to CFB.
• There was a 94% increase in homeowners’ insurance fraud cases.
• The number of agent and broker fraud cases submitted to the CFB declined by more than 48%.
• While the number of workers’ compensation insurance fraud cases rose over the five year period, between 2019 and 2020 there was a 13% drop in reported cases — from 150 to 131.

CFB investigations resulted in 53 state and federal criminal charges filed during 2020. Over the previous five-year period, an average of 119 criminal charges were filed annually.

Agent Fraud

While agent/broker fraud referrals have declined over the past five years, in 2020 one of the largest fraud investigations involved an agent who was charged in November 2020 with stealing an estimated $524,000 from his clients.

In June 2020, CFB began investigating John David Paulson, a licensed insurance agent and owner of David Paulson Agency Inc., an independent insurance agency in Wadena. Complaints from customers of the agency alleged that over several years Paulson failed to forward to their premiums to their insurance companies. Paulson’s failure to submit the premium payments to the insurers was discovered after the victims attempted to make a claim on their policies.

According to the CFB, “bank records showed that from approximately 2011 thru 2018 Paulson had failed to forward the victims premium payments to the appropriate insurance companies and instead converted over the money for his own personal use such as making his mortgage payments and paying personal bills such as credit card payments.”

Paulson was indicted in November 2020 by the U.S. Attorney’s Office for the District of Minnesota and charged with two counts of mail fraud.

Funding

The CFB, which had a total staff of 20 in 2020, including the 16 full time law enforcement officers, is funded by four major sources:

• An insurance fraud assessment on insurers.
• An appropriation from the Minnesota Department of Labor and Industry to conduct workers’ comp fraud investigations.
• An administrative fee for management of the Auto Theft Prevention Grant Program.
• A $1.3 million appropriation from the Auto Theft Prevention Grant Program.

The five-year average revenue amount resulting from the insurer assessment is $1,717,650. The assessment was collected from 1,177 insurance companies in 2020, each of which paid an average $1,504. The legislative appropriation for funding workers’ comp fraud investigations totals $198,000. The CFB receives $1,300,000 annually in transfers from the Auto Theft Prevention Grant Program and in 2019, it received $220,000 under the ATPP for program administration.

Topics Trends Fraud Minnesota