Alliance Says Calif. Emergency Regs on Fraud Investigations are Unnecessary

September 4, 2003

The California Department of Insurance’s proposal to further regulate the special investigations units of insurance companies is excessive and unnecessary according to the Alliance of American Insurers.

In written comments on the Department’s proposed emergency regulations, Alliance vice president and Western regional manager Peter Gorman said, “Insurers take fraud investigation and referral for prosecution very seriously, and most companies are dedicated to fulfilling their commitment. Insurers spend over $650 million a year to detect and deter fraud. But these regulations specify to an extreme level of detail ¾ even to the level of ‘micromanaging’ ¾ as to how companies are to conduct these procedures. Indeed, the method and effectiveness of fraud investigation is one of the competitive market forces at work in the insurance industry. Those companies who do it more effectively can offer lower rates and will succeed, while others that do not will charge higher rates and become uncompetitive.”

Several sections of the emergency regulations raise serious questions, said Alliance Director of Claims Kirk Hansen. “For instance, under the proposed emergency regulations, all Special Investigation Unit (SIU) employees and other integral anti-fraud personnel would be required to be fully trained within 30 days of their hiring and would be required to be knowledgeable of all fraud-related law. That definition could include claims handlers, underwriters, agents, and other employees who may deal with fraud but are not SIU employees. By that definition, virtually every employee in an insurance company would be required to receive training within 30 days. This is not practical or necessary.”

“While we commend the Department’s efforts to crack down on fraud, overstating the seriousness of the problem and placing unnecessary
burdens on insurers is not the way to go about improving the situation,” said Gorman. “We urge the Department to forget about these emergency regulations and work with insurers to implement meaningful reform that will help us fulfill our mission to investigate and refer for prosecution all suspected insurance fraud.”

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