To Catch a Thief-State DOI’s Work Hard to Keep Agents in Line

A quick browse through the Web sites of state insurance commissioners across the country on any given day in any given year is bound to turn up at least one account of regulators cracking down on an insurance agent for a variety of reasons—from minor infractions of the insurance code to theft of premium.

Most likely it’s the latter. Agents taking in premium dollars and not sending them to the insurance company to bind the insurance is the most common reason for regulators to take action against insurance agents. But just how big a problem is it?

“It’s hard to say, I don’t know if anybody actually quantifies agent or broker activities,” said Nanci Kramer, a spokesperson for the California Department of Insurance. “It’s hard to estimate how big something like this is. … When it comes to what agents and brokers are doing it’s so hard because many times … where someone’s collecting premiums giving a consumer what looks like a good certificate of insurance, if nothing ever goes wrong, we don’t hear about it.”

Lee Jones, a spokesperson for the Texas Department of Insurance, agreed that it’s difficult to determine to what extent agents are out there committing theft and defrauding their customers. “It’s always hard to say how big a problem it is, it’s always a little hard to respond, because anytime a consumer loses money because of a dishonest agent, anytime a consumer has an auto accident and then finds out he’s not covered, it’s serious,” Jones said.

“We have approximately 200,000 individuals in Texas who hold agent licenses of one kind or another and if you measure the cases in a year’s time on which we take action because an agent was stealing premium, it’s a drop in the bucket. By far the majority of these people are honest and do their work and don’t do harm to their clients or policyholders. But there’s always some bad apples. It’s kind of like saying ‘how big a problem is theft?’ In general, most people don’t steal. We’ve got 20 million Texans and if you count the number of people who get arrested and sent up for theft, compared to the 20 million it’s not very big. I think it’s the same deal with agents. Anytime it happens, it’s severe, it’s bad, it’s serious. But not a lot of agents do it and when we catch them we deal with them pretty severely.”

Whether or not insurance code infractions or criminal activity on the part of insurance agents are increasing with the downturn in the economy is also a difficult question to answer, due to the overwhelming fact that if nothing goes wrong, regulators never know about it. In addition, although most departments publish enforcement actions taken against agents, the departments don’t necessarily generate the kind of statistical information that shows amounts of premium dollars stolen by agents through the years.

Robert Wooley, Louisiana’s Acting Commissioner of Insurance, said his department issued cease and desist orders and/or summary suspension of licenses to 15 agents or agencies in his state in 2002. The department also had five arrests and 27 criminal referrals. However, Wooley was not sure that there has been an increase in the numbers of agents acting unscrupulously. “I think that we have been more active in looking for these problems and trying to do a better job of policing the agents,” he said.

James Quiggle, a spokesperson for the Coalition Against Insurance Fraud, thinks a sluggish economy and a hard market may offer increased temptations for agents to get into trouble. There has “always been a problem with a small percentage of insurance agents who willingly spend their clients’ premiums,” Quiggle said. But “with the economy still dragging agents are under pressure.” Cuts in commissions and declining profits may be causing agents to get involved in deals that they may otherwise have stayed away from.

But CDI’s Kramer said it works both ways. While it’s commonly thought that when economic times are hard, crime goes up, “this kind of crime can go up when economic times are good because there’s more money to take from people,” Kramer said. “But the issue now—when you look at difficult economic times—people are looking for value. They’re looking for the deal of a lifetime, so if someone throws up billboard or an ad that says …. ‘I do this cheap,’ then people might be attracted to it.”

According to Kramer, one of the biggest cases being worked by the California department concerns an agent whose company, Harbour Insurance, targets the entertainment industry. “AIG actually took out ads in the Wall Street Journal, Los Angeles Times, the New York Times, telling people to stay away from this guy because he was selling insurance saying that he was authorized under AIG and he was not. So they were concerned that people doing big events—this was post 9/11—people doing big events or film shoots or something like that thought they had insurance and they did not.”

Kramer explained that the agent, Clarence Joseph Hall, had a “certificate at one time, he was an okay agent I suppose. Or at least he was authorized; he isn’t anymore.” She said his Web site, www.harbourinsurance.com, shows the company “as being in Los Angeles, San Antonio and New York, with actual street addresses. But when we go there, there’s nobody there.” According to Kramer the Harbour Insurance Web site claims the company can save clients 20 to 30 percent on their insurance program. “These days when people are looking for value, this is the kind that would attract them,” she said.

California also has a problem with unscrupulous agents targeting the state’s Spanish-speaking population. “We had a really big case in L.A. recently—in La Fuente, Pasadena area—with a guy who had been targeting Latinos,” Kramer said. “We found out he’d been in business for a couple of years. There were people who literally had been paying this guy for a couple of years and it wasn’t until people had to file claims that we found out about it. It was a huge case. It’s estimated this guy took more than $2 million from people.”

She said Calif-ornia’s migrant population are “often victims of this kind of scam. Especially because insurance is required if you’re going to have a car here. And so folks who are on a limited budget, work the service industry and are new to the country will often fall victim to someone who’s saying—’I can get it to you for even less money’ when nothing really ever even exists. Bogus insurance certificates are sold all over downtown Los Angeles. You can go to almost any corner in downtown L.A. and pick one up.”

Cracking down
Agents who get caught, and are proved to be, operating unethically and/or illegally face repercussions that run from suspension or revocation of their license, to fines and/or jail time. California, Louisiana, Texas and most, though not all, states have fraud units dedicated to investigating not only infractions by agents and unauthorized insurers but insurance fraud committed consumers by as well. The state departments generally work in tandem with district attorneys and other state agencies to conduct investigations and prosecute the offenders, if it comes down to that.

In Texas, the Travis County District Attorney has jurisdiction over insurance fraud cases statewide. However, cases can sometimes be prosecuted by the local DA in the jurisdiction where the alleged crime occurs. TDI’s fraud unit and legal department operated in a somewhat bifurcated manner, according to Jones. The fraud unit consists of licensed, commissioned peace officers whose total focus is criminal. The legal department performs investigations, as well, although their cases tend not to result in criminal prosecution. The legal department can share information with the fraud unit, but not the other way around.

Louisiana’s fraud unit consists of department employees who work with the Louisiana state police and a section of the Attorney General’s office. In the case of criminal action, district attorneys in the parishes where the crime is committed generally prosecute the case. “The state police does a lot of the legwork of the investigation and carries out the arrest,” Wooley said. “Our department does a lot of putting the evidence together, working with the Attorney General’s office so that we can then turn it over to either the district attorney or, if necessary, a U.S. attorney. But most of them are state actions that involve the local parish district attorney.”

“We have 18 different fraud investigative offices statewide,” Kramer said, referring to California. “Plus our three headquarter-type offices in L.A., San Francisco and Sacramento.” She explained that CDI works very closely with local district attorneys and participates in a grant program that helps fund a partnership between the department and local DAs. “Because it’s hard … once you’ve done all this investigative work you turn it over to the prosecutor. And whether or not they pursue is then in their hands. So we work very closely with the DA from the beginning of our investigations to make sure that we are crossing all the t’s and dotting all the i’s that they would need to have a successful prosecution.”

Consumers and other agents are the departments’ most common sources of information about agents who’ve gone bad. When claims don’t get paid, consumers who think they’re dealing with a real insurance entity contact the state departments. And agents who think they’re being competed against unfairly are also quick to complain.

“We’ll get complaints from consumers, is the way we get most of them,” Wooley said. “Sometimes we get complaints from their competitors, the other agents in the area. In fact, we get a lot of them from agents who pick up on this through a meeting with customers and finding out these things and then they report it to us.”

To comment on this story, please e-mail sjones@insurancejournal.com.

Topics California Texas Fraud Agencies Louisiana