States Surprised with Burst of Insurance Fraud-Related Legislation in 2018

By | January 7, 2019

Lawmakers Debated More Than 100 Fraud-Related Bills and Passed 33 into Law

The introduction of new bills slows down during years when legislators tend to be more concerned with reelection. That’s why 2018 was such a surprise, according to Matthew Smith, director of government affairs and general counsel for the Coalition Against Insurance Fraud.

On the state level, there were 116 new pieces of anti-fraud-related legislation introduced, resulting in 33 new laws, he said.

“There may still be a slight chance of a couple more slipping in before the ball drops in Times Square on New Years’ Eve,” Smith added.

Patient brokering laws were passed in Arizona, Illinois, Utah and West Virginia. These laws ban payment to any medical facility or person in exchange for referring patients to treatment facilities.

Workers’ compensation reform continued to be a hot button issue last year with legislation passed in Arkansas, California and Illinois. One new law in California deals with liability for peace officers working outside the state. Arkansas in March approved a law providing for regulation and licensing of pharmacy benefits managers by the insurance department.

Illinois lawmakers decided to require the pre-approval of workers’ compensation rates by the insurance department.


Alabama passed a roofing contractor licensing law.

“When you look at the potential for hurricanes, tornadoes, that face those types of states, we are very much supporting those types of laws that protect against the storm chaser-type of frauds,” Smith said.

Iowa passed a new law allowing insurers the ability to pursue restitution from fraudsters. This statute clarifyies that insurers can be considered a crime victim in Iowa, which was not previously the case.

Airbag Danger

CAIF continues to partner with Honda North America to protect American consumers on fraudulent airbags. When an airbag is replaced after an accident with a knock-off there can be a danger to the vehicle’s driver and passengers.

“The tragedy of that fraud is the consumer doesn’t know they’ve been defrauded until the next accident when, literally, their life is at risk as they hit or fly through the windshield because their airbag did not properly deploy,” Smith said.

“That’s a fraud that we don’t read about or hear about too often,” he said, noting that Rhode Island’s governor signed a law to deal with knock-offs.

Cyber, Data Privacy

Two of the most significant laws were in the area of cyber privacy and came out of South Carolina and California.

This year, South Carolina became the first state in the nation to adopt the National Association of Insurance Commissioners’ (NAIC) cyber security law. Smith expects other states will either follow suit or create similar legislation for the protection of consumer’s rights of privacy and data usage.

“The model bill is very comprehensive,” Smith said. “For example, it requires every insurance company to designate a person or a vendor responsible for their cyber security programs. It also requires written policies and procedures to be in place on the use of data, and when there are data breaches.”

He offered an example to highlight the impact to insurers.

“If a claims person so much as loses a laptop or…a smart device that has non-public personal data of an insured or a claimant, that is now unaccounted for because that device has been lost or stolen, it is mandatory to report that to the state DOI, and they have the right to investigate it and, under certain circumstances if there are blatant violations, fine or take licensing action over data breaches and the loss of personal information,” he said.

California enacted a law protectng citizens’ data privacy that the industry is monitoring.

“The California Privacy Law applies to insurers and all other businesses in the state and has very severe restrictions on the use of private data,” Smith explained. “We’re looking at it from the standpoint of what impact it might or might not have on an insurer’s ability to even report fraud. We think we’re all right there, but we’re partnering with others to look to make certain that it does not infringe on the ability to report insurance fraud under the Privacy Act.”

Several amendments to the law are expected before it becomes effective on Jan. 1, 2020.

South Carolina and California passed significant cyber data privacy laws.

Fraud Authority

The anti-fraud community in Michigan was taken by surprise when, in September, then outgoing Governor Rick Snyder issued an executive order creating a state insurance fraud authority. Smith said it’s something that had been in the works for years, but had continually stalled.

“We at the Coalition have tried for years to work with the Legislature in Michigan, because the state desperately, in our opinion, needed an auto fraud authority, especially when you have that type of a personal injury protection (PIP) system and the frauds, abuses, and scams occurring in Michigan,” he said. “Unfortunately, the bills always failed, not because the legislators were not in favor of a fraud unit, but because it was always joined at the hip with PIP reforms and there could never be a consensus on that.”

The scope of the fraud authority is much broader than just auto insurance, Smith said.

“Without…a law on the books, future governors could decide to do away with it, and there’s also no funding for it,” he said. “It doesn’t have a funding structure or mechanism underneath it because it was created by executive order. So, one of our priorities — we’d love to have it yet this year or in 2019 — is to work with the legislature to take what the governor created by executive order, a free-standing insurance fraud authority, but created now with an actual legislative structure and with a funding mechanism to make certain that it’s permanent.”

ALI Restatement

Many in the industry believe that the American Law Institute’s revised Restatement on Liability Insurance could create new theories of recovery and new areas of law in states.

Even though ALI restatements are not laws, there is concern that this will be relied on as if it is the law.

“They are probably the most cited authority on issues like liability insurance by judges in issuing decisions and by attorneys in submitting briefs to courts addressing those issues. So, there’s grave concern that the ALI Restatement, as they adopted it now, changes dramatically the world of insurance law,” said Smith.

Ohio passed a law in July that says state courts don’t have to follow the new ali version.

It remains to be seen if other states will follow suit.

About Denise Johnson

Denise Johnson is editor of More from Denise Johnson

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Insurance Journal West January 7, 2019
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