The readers of this magazine are well aware of the financial toll that insurance crime exacts upon insurance companies and policyholders. You also are aware of the efforts by individual insurers, the industry as a whole, regulators, and legislators to work with law enforcement in the prevention, detection, and prosecution of criminals.
Over the years, a variety of laws have been enacted at the state and federal level to try and facilitate this effort, which remains a work in-progress. The laws are all over the map, addressing claims and premium fraud, as well as fraud-reporting immunity.
The Property Casualty Insurers Association of America has been tracking changes to insurance crime laws and regulations for member companies, and publishing a comprehensive fraud compilation. The compilation highlights that many states have created fraud bureaus, housed in a variety of state agencies: insurance departments, workers' compensation agencies, attorneys general, state police, etc. Some are multi-line in terms of jurisdiction, while others are limited to investigating workers' compensation claims.
Unfortunately, despite years of effort by the industry and other allies, several states still have very weak laws on their books or have refused to enact key legislation. Among the states without strong anti-fraud stances are Alabama, Mississippi, Nevada, Oregon, Vermont, and Virginia. Alabama has no law at all. Mississippi and Vermont lack fraud reporting immunity or whistle-blower protection laws, which are critical inducements to reporting suspected fraud.
The situation in those relatively small market states can, at best, be characterized as benign neglect. Of greater concern are proposals in several other states to either weaken the laws, hampering the industry's efforts at crime-fighting, or deny insurers and law enforcement necessary tools.
This year, Arizona legislation would have allowed lawsuits against the fraud bureau and weakened the state's fraud-reporting immunity law, but the bill ultimately failed. Enactment would have had a chilling effect upon aggressive crime fighting.
New York auto insurance reform legislation to criminalize runner activity, certify treatment and testing protocols, and de-certify fraudulent clinics and providers remains stalled in the Democratic-controlled Assembly after passing the Republican-controlled Senate. The Assembly is insisting upon creation of a new Consumer Advocate position and an even more restrictive rating system, which have nothing to do with tackling the state's fraud epidemic.
So-called prompt-payment legislation applicable to property and casualty claims was considered in California, Colorado, Idaho, and New York. However well intended such legislation may be, it serves to impede insurer efforts to detect claim fraud. Insurers facing arbitrary deadlines and potentially steep unfair-claim-practice fines would be deterred from pursuing time-consuming investigations. The Colorado and Idaho bills were enacted after being amended to make them more palatable.
State budget shortfalls prompted many legislatures to attempt to appropriate or raid dedicated Automobile Theft Prevention Authority (ATPA) or fraud bureau funds in order to divert that money to plug holes in state budgets. Such efforts succeeded in Florida, Illinois, and Maryland, but failed in Arizona and Michigan.
Positive Action
On the other hand, due to the efforts of insurers, regulators, and legislators, good things also are happening around the country. After many years, new comprehensive anti-fraud legislation finally was enacted in West Virginia. New fraud bureaus have been created in Minnesota and West Virginia. A new California law criminalizes workers' compensation self-referrals by physicians. Aside from the stalled New York anti-fraud legislation noted above, the Automobile Insurance Plan has begun devoting considerable resources toward fraud-fighting activity. In addition, many states have been revisiting and strengthening their anti-arson laws, particularly in regard to auto arson.
Legislation and regulations in Michigan and New York have sought to impose prompt notice requirements upon auto no-fault medical claimants, before massive and fraudulent treatment and testing bills can be incurred without the opportunity for review by insurers. The New York regulation has withstood a court challenge, but the Michigan bill stalled in the legislature. In many ways, this is the other side of the coin vis ? vis the troublesome prompt payment legislation discussed above.
Trade associations are in the vanguard of the war against fraud. The National Conference of Insurance Legislators adopted model anti-runner legislation for consideration in problem states, particularly those with large metropolitan areas. The PCI supports this model. Legislation is pending in Massachusetts, and is expected to be filed next year in Texas.
The National Association of Insurance Commissioners is in the process of developing a Public Adjuster Licensing Model Act. Once adopted by the NAIC and enacted by various state legislatures, states' insurance departments finally will have a tool for reining in the abusive practices of some public adjusters. The PCI supports this effort, as well. The NAIC also is in the process of developing and conducting a State Insurance Department Anti-Fraud Resource Survey.
In an effort to help combat the growing problem of identity theft, 25 states have adopted or enacted some version of the NAIC's information safeguarding regulation. Proposed regulations are pending in six other states. The model reasonably codifies the information safeguarding mandates in Title V of the Gramm-Leach-Bliley Act.
Attention to the need for more and stronger anti-insurance crime legislation has tended to ebb and flow over the years. While considerable progress was made during the early to mid-1990s, reforms in recent years have been more incremental on a state-by-state basis. As positive as those changes may have been, multi-state progress will require an industry-wide effort. What can you do to help?
oIf your company writes in one of the remaining six states with weak or virtually non-existent anti-fraud laws, make your views known to the regulator, legislators, and your own policyholders.
oLetters to the editor also can be effective. Do not let trial lawyers, chiropractors, and public adjusters define the terms of the debate.
oWork with your national or state trade association, as well as other professional societies and coalitions to get the word out and to build momentum for further legislative reforms.
oDo more to publicize your own anti-fraud efforts to hold the line on costs on behalf of your policyholders and shareholders.
Reynold Becker is vice president, personal lines for the Property Casualty Insurers Association of America.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.