California Insurance Commissioner Announces Anti-Fraud Guidelines

California Insurance Com-missioner John Gara-mendi has announced new Special Investigative Unit (SIU) regulations for insurance carriers licensed to conduct business in California. The regulations are a result of a collaborative effort with the Depar-tment of Insur-ance, members of the insurance industry and other key stakeholders, according to the department.

The new regulations, in particular, revised fraud definitions; created continuous SIU operation requirements; in-creased antifraud training procedures for integral antifraud personnel of the insurers; created stricter communication re-quirements; improved examinations; clarified when to refer suspected insurance fraud to the department; and clarified the penalties for noncompliance and administrative hearing processes, said Karen Scott, headquarters chief for the department’s enforcement branch.

The regulations also include language that implements penalty statutes contained in California Insurance Code sections 1875.24, which became effective earlier this year.

Scott said anti-fraud guidelines existed previously, but the new regulations “are an improvement for compliance in reporting suspected insurance fraud to the department of insurance.”

Janine Gibford, assistant vice president for state affairs for the American Insurance Association, agreed that many companies already have SIU units. However, the regulations makes it a requirement for all insurers to have an SIU, describes how to staff it with personnel, and describes how to provide cases and files, she said. The AIA was one of the industry groups that worked with the department to develop the regulations.

“I think [the regulations] were just a way for the fraud unit of CDI to find a better way to work with companies,” Gibford noted. When the SIUs were just guidelines, “the department was concerned that some things might slip through the cracks and would not be reported to the department in a timely fashion.”

The new regulations, which were adopted on Oct. 7, 2005, are the culmination of work that began in September 2004. Scott said the regulations should not create a large cost impact to insurers.

“Insurers will be required to provide antifraud training, but they already had that requirement so it’s more defined improvements,” she said.

Gibford, on the other hand, believed there might be some cost increases for smaller companies that do not already have a SIU unit on staff. “Larger companies already were conducting business in the same manner as these regulations,” she said, “but some smaller companies that did not have a SIU unit will have to staff one. The regulations make sure all companies have the ability to maintain SIU units.”

Despite potential increased costs, Gibford believes the regulations are beneficial for the industry. “We’ve been working with the department for a little more than a year on this. [Prior to the regulations,] the department handled their fraud reporting in their way, and companies managed fraud in a way that worked best for them,” she said. With AIA’s involvement, “we wanted to insure that companies presented how their functions work and that the regulations were not cost exorbitant. I think we ended up with a pretty good regulation.”

“I applaud the hard work and combined efforts between CDI, the insurance industry and stakeholders to form these new regulations,” Garamendi said. “The new more stringent guidelines will be a huge advantage in our efforts to stop insurance fraud.”

Insurance company SIU’s review and refer incidences of suspected insurance fraud to the Department’s Fraud Division, which receives approximately 24,000 suspected referrals each year.

The full text of the new regulations, effective as of Oct. 7, 2005, can be found on the CDI Web site. Those regulations, Title 10, California Code of Regulations, Chapter 5, subchapter 9, article 2, sections 2698.30 to 2698.43, implement California Insurance Code sections 1875.20-24.

Topics California Fraud Legislation