California. Special Investigative Unit Requirements

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1 California Department of Insurance California Special Investigative Unit Requirements Dave Jones Insurance Commissioner Martin Gonzalez Deputy Commissioner (Acting), Enforcement Branch Stephen J. Smith, CFE Enforcement Branch Headquarters Chief Terri McClain Audit Manager, SIU Compliance Program April 2015

2 Training This video partially satisfies the new hire orientation, integral anti-fraud annual, and SIU continuing training requirements. Specifically, this video satisfies: CCR (c)(1)(C) New Hire Orientation a review of Fraud Division insurance fraud reporting requirements CCR (c)(2)(E) Integral Anti-Fraud Annual Training Fraud Division insurance fraud reporting requirements CCR (c)(3)(B) SIU Continuing Training communication with the Fraud Division and authorized governmental agencies 1

3 CDI Audits and Examinations of Insurers CDI Enforcement Branch Fraud Division Market Conduct Division Financial Examination Division SIU Compliance Program Field Claims Bureau Field Rating & Underwriting Bureau 2

4 CDI Fraud Division Mission The CDI Fraud Division will protect the public and prevent economic loss through the detection, investigation, and arrest of insurance fraud offenders. 3

5 SIU Compliance Program: Who We Are Part of CDI Fraud Division. We audit insurer s SIU operations for compliance with California SIU statutes and regulations. 4

6 SIU Compliance Program: What We Do Conduct onsite audits of insurer s SIU operations Analyze SIU Annual Reports filed by ~1,200 insurers Train insurers on California SIU statutes and regulations Promote identification, investigation, and reporting of suspected insurance fraud Increase insurance fraud awareness 5

7 SIU Compliance Program Contacts Terri McClain - Audit Manager Chez Colson, Auditor Maryam Tahriri, Auditor Debra Millan, Auditor Vacant - Auditor (916) Terri.McClain@insurance.ca.gov (916) Chez.Colson@insurance.ca.gov (916) Maryam.Tahriri@insurance.ca.gov (916) Debra.Millan@insurance.ca.gov (916) Darlene Cotham, Analyst (Annual Report questions only) (916) Darlene.Cotham@insurance.ca.gov 6

8 CDI s Regulatory Authority to Examine Insurer SIU Compliance California Insurance Code (CIC) 730 California Insurance Code (CIC) Confidential Audits California Code of Regulations (CCR) (a) The commissioner may conduct examinations of an insurer s SIU and related operations, including operations undertaken by entities under contract with the insurer, as deemed necessary to determine compliance with the requirements of this article. 7

9 Requirement to Maintain a SIU CIC : Every insurer admitted to do business in this state, except for those otherwise exempted in this code, shall provide for the continuous operation of a unit or division to investigate possible fraudulent claims by insureds or by persons making claims for services or repairs against policies held by insureds. 8

10 Exceptions to Requirement to Maintain a SIU CCR (j) "Insurer" means every insurer admitted to do business in California except: 1. Reinsurers 2. Title insurers 3. Fraternal fire insurers 4. Fraternal benefit societies 5. Firemen, policemen or peace officer benefit and relief associations 6. Grant and annuity societies 7. Home protection 9

11 What is required of the Insurer s SIU? CCR SIU is knowledgeable and adequately staffed. SIU and integral anti-fraud personnel written procedures are maintained and include all required topics. Insurance transactions with red flags are referred to SIU. SIU investigations comply with California SIU statutes and regulations. Referrals to CDI are accurate, timely and complete. Required anti-fraud training occurs and is properly documented. SIU Annual Report is accurate and submitted timely. Written information requests from CDI and/or district attorneys are responded to timely and completely. 10

12 Non-Compliance Penalties CIC (b) and CCR Up to $5,000 per inadvertent act Inadvertent act of non-compliance means unintentional. Up to $10,000 per willful act Willful act of non-compliance means a purpose or willingness to commit the act or make the omission. 11

13 SIU Staffing CIC CCR (o), (a), Insurers shall maintain a unit or division to investigate possible fraud. SIU may be insurer employees or contracted entities. May be a distinct unit or division, or SIU duties can be assigned to employees whose principal responsibilities are the investigation and disposition of claims. Adequacy of an insurer s SIU staffing shall be determined by its demonstrated ability to comply with California SIU statutes and regulations. 12

14 SIU Knowledge and Ability CCR (b) SIU employees shall have knowledge and/or experience in: general claims practices analysis of claims for patterns of fraud current trends in insurance fraud education and training in specific red flag red flag events and other criteria indicating possible fraud SIU employees shall have the ability to conduct effective investigations of suspected insurance fraud and be familiar with insurance and related law and the use of available insurer related database resources. 13

15 Role of Integral Anti-Fraud Personnel CCR (a) An insurer s integral anti-fraud personnel are responsible for identifying suspected insurance fraud during the handling of insurance transactions and referring it to the SIU as part of their regular duties. 14

16 Integral Anti-Fraud Personnel CCR (k) Includes insurer personnel whose duties may include the processing, investigating, or litigation pertaining to payment or denial of a claim or application for adjudication or claim or application for insurance. claims handlers underwriters policy handlers call center staff within the claims or policy function legal staff Defined other insurer employee classifications that perform similar duties 15

17 Written Procedures for Integral Anti-Fraud Personnel CCR (b) The SIU shall establish, maintain, distribute and monitor written procedures to be used by the integral anti-fraud personnel to detect, identify, document and refer suspected insurance fraud to the SIU. 16

18 Content of Written Procedures for Integral Anti-Fraud Personnel CCR (c) The procedures for detecting suspected insurance fraud shall provide for a comparison of any insurance transaction against: Patterns or trends of possible fraud Red flags Events or circumstances present on a claim Behavior or history of person(s) submitting a claim or application Other criteria that may indicate possible fraud 17

19 Investigating Suspected Insurance Fraud CCR The SIU shall establish and follow written procedures for the investigation of suspected insurance fraud. An investigation of suspected insurance fraud shall include: A thorough analysis of a claim file, application, or insurance transaction. Identification and interviews of potential witnesses. Utilizing industry-recognized databases. Preservation of documents and other evidence. A concise and complete summary of the investigation, including the investigator s findings regarding the suspected insurance fraud and the basis for their findings. 18

20 Detecting and Investigating Insurance Fraud Effective Establish, maintain, distribute, and monitor procedures to all anti-fraud personnel Establish, maintain, distribute and adhere to SIU investigative procedures Proactive and aggressive approach to fraud detection and investigation Ineffective No written integral anti-fraud personnel and/or SIU procedures Procedures are outdated Procedures are not fully compliant with California SIU regulations Reactive approach to fighting fraud waits until losses are incurred SIU does not investigate 19

21 CCR SIU shall refer suspected insurance fraud to the Fraud Division. Workers Comp shall also be referred to the district attorney. Referrals shall be submitted in any insurance transaction where the facts and circumstances create a reasonable belief that a person or entity may have committed or is committing insurance fraud. Referrals shall be made within 60 days of determining that reasonable belief exists. Requirements of this section do not diminish statutory requirements contained in the Insurance Fraud Preventions Act (IFPA) regarding the confidentiality of any information provided in connection with an investigation. Notes: Referral of Suspected Fraud to CDI Application status, claim status, or possible civil action, suspected fraud is not relevant. If you refer to CDI via the NICB website, complete the entire California section at the end of the form. 20

22 Referral Content CCR Three critical pieces of information are: 1. A complete and concise synopsis 2. Loss amount 3. Loss location(s) Errors and omissions are significantly reduced by using the electronic referral system (efd-1) instead of the paper form (FD-1). To register for the efd-1: call (916) or electronicsubmissionfd-1@insurance.ca.gov 21

23 Reporting Fraud to CDI Effective Reports to CDI upon reasonable belief of fraud Uses current FD-1/eFD-1 forms and codes Provides complete and concise synopsis with sufficient facts and detail Reports within 60 days of reasonable belief Maintains contact with CDI Fraud Investigators Ineffective Does not report to CDI at all Does not report to CDI until the SIU investigation is completed Uses outdated paper forms and/or codes Suspected fraudulent claims contain errors and/or omissions Synopsis does not provide sufficient facts Does not respond to CDI Fraud Investigator inquires timely 22

24 Communication CIC 1873, , (d) CCR If an information request is received from CDI or district attorney, insurer should respond immediately but no later than 30 calendar days. Exception: 60 days for Workers Comp. Failure to respond timely and completely may trigger an SIU audit to identify the cause of the noncompliance and provide recommendations to resolve the issues. Noncompliance may result in penalties. Notes: Follow up on fraud referrals with the CDI Investigator. If a case is declined and you strongly disagree, contact the CDI Investigator to discuss further. 23

25 Anti-Fraud Training CCR The insurer s SIU shall establish and maintain an ongoing anti-fraud training program to develop and improve the anti-fraud awareness. The anti-fraud training program shall consist of three levels: 1. New hire anti-fraud orientation training 2. Integral anti-fraud personnel annual anti-fraud training 3. SIU personnel continuing anti-fraud training 24

26 Anti-Fraud New Hire Orientation CCR (c)(1) Shall be provided to all new hires* within 90 days of commencing duties and shall include: 1. Function and purpose of the SIU. 2. Overview of fraud detection and referral of suspected insurance fraud to the SIU for investigation. 3. Review of CDI Fraud Division insurance fraud reporting requirements. 4. Organization chart depicting the insurer s SIU. 5. SIU contact telephone numbers. * Integral Anti-Fraud Personnel new hires. 25

27 Integral Anti-Fraud Personnel CCR (c)(2) Annual Training Integral anti-fraud personnel shall receive annual anti-fraud training, which shall include: 1. Review of the function and purpose of the SIU. 2. Introduction/review of written procedures for the identification, documentation and SIU referral of incidents of suspected fraud. 3. Identification and recognition of red flags or red flag events. 4. Any changes to current procedures for identifying, documenting and referring incidents of suspected insurance fraud to the SIU. 5. CDI Fraud Division insurance fraud reporting requirements. 6. Introduction/review of existing and new, emerging insurance fraud trends. 26

28 SIU Personnel Continuing Anti-Fraud Training CCR (c)(3) The SIU personnel shall receive continuing anti-fraud training that includes: 1. Investigative techniques 2. Communication with the CDI Fraud Division and other authorized governmental agencies 3. Fraud indicators 4. Emerging fraud trends 5. Legal and related issues 27

29 Documenting Anti-Fraud Training CCR (d) The insurer shall maintain records of the anti-fraud training provided to new hires, integral anti-fraud personnel, and SIU staff. The training records shall include: Title and date of the anti-fraud training Name, title and contact information of the instructor(s) Description of the course content Length of the training course The name and job title(s) of participating personnel Records shall be prepared at the time training is provided and be maintained and available for inspection by CDI upon request. 28

30 Anti-Fraud Training Effective Anti-fraud orientation provided to all integral anti-fraud new hires within 90 days of commencing assigned duties Annual anti-fraud training provided to all integral anti-fraud personnel Continuing anti-fraud training provided to all SIU staff Maintain adequate and complete training records Ineffective Training does not cover all topics required Anti-fraud orientation not provided to all integral anti-fraud new hires Annual anti-fraud training not provided at all or only to some integral anti-fraud personnel No system to ensure all integral anti-fraud personnel receive anti-fraud training SIU does not receive continuing education Lack of or incomplete training records 29

31 Anti-Fraud Training (cont.) Effective Insurer keeps informed of: Current regulatory and reporting requirements Fraud alerts, red flags Updated procedures Fraud referrals Emerging fraud trends, detection methods Ineffective Insurer not aware of new regulations or statutes SIU does not keep abreast of fraud trends, detection, use of databases SIU does not train or share information with integral anti-fraud personnel Insurer does not interact with CDI or other authorized agencies Insurer works with CDI for training purposes as well as investigations 30

32 SIU Annual Report CCR Each primary insurer shall file a SIU Annual Report for itself and its subsidiary(ies). CDI notification is mailed in June. SIU Annual Report is due within 90 days. Report must be signed by an officer of the holder of or applicant for the Certificate of Authority 31

33 SIU Annual Report Compliant Submits complete and accurate report timely Non-Compliant Incomplete, inaccurate report If using a contracted SIU, TPA(s), General Agent(s), or MGA(s), provides contracts Fails to provide contracts for external SIU, TPA(s), General Agent(s) and MGA(s) Contracts contain all required information Statistics include information from primary insurer, subsidiary insurer, TPAs, General Agents, and MGAs Fails to indicate how contracted SIU is monitored Fails to submit annual report timely 32

34 SIU Audits CCR Two types of audits are used to determine the adequacy of the insurer s SIU based on compliance with applicable sections of the IFPA and CCR Onsite Audits - focuses on all aspects of insurer s SIU operations Limited Scope Audits A. SIU contracts B. Written procedures C. Training materials and training records content D. Other objectives as needed As appropriate, insurers will be invoiced for travel expenses, per diem, and billable time. 33

35 How is an Insurer selected for an SIU Audit? SIU Annual Report review Quantity and quality of referrals to CDI Lines of insurance Market share Failure to respond to CDI information request Commissioner s priorities Referrals from within/outside CDI 34

36 SIU Audit Process and Timelines A field audit usually takes one week onsite CDI contacts insurer 8 weeks in advance to schedule dates and location of onsite audit. The audit process starts with an engagement letter and Documentation Request to insurer. Some documents are due 30 days prior to onsite visit. Provide requested documentation timely, including full system access on the first day. Entrance conference is held the first day. Exit conference is typically held the last day. Potential findings are discussed at exist conference. 35

37 SIU Audit Process and Timelines (cont.) Insurer has 30 days to respond to Preliminary Report and submit a Corrective Action and Compliance Plan (CACP). If CACP is accepted by CDI, it becomes a supplement to the SIU Annual Report on file. Final Report is issued ~60 days after insurer s response to Preliminary Report is received. Final Report states whether the CACP is accepted by CDI. Non-compliance with California SIU statutes or regulations will result in penalties. 36

38 What the Auditors Look at to Determine Compliance SIU staffing and performance Written anti-fraud procedures for integral anti-fraud personnel Written procedures for SIU investigations New-hire anti-fraud orientation training (materials and records) Annual anti-fraud training for integral anti-fraud personnel (materials and records) Continuing anti-fraud training for SIU (materials and records) Closed California claims SIU investigation files efd-1/fd-1 suspected fraud referrals SIU Annual Report CDI and DA documentation requests and the timeliness of insurer response 37

39 External SIUs, TPAs, General Agents, MGAs, and Partners are also Examined CCR (a), (a) The operations/activities conducted by external entities such as contracted SIUs, TPAs, General Agents, and MGAs conducting business on behalf of the insurer are subject to audit. 38

40 External SIUs, TPAs, General Agents, MGAs, and Partners are also Examined CCR (a), (a) External SIUs, TPAs, General Agents, MGAs, Partners, etc. If you contract out any part of the SIU or integral anti-fraud personnel services function, they must comply with California SIU statutes and regulations Insurer is responsible to ensure their contracted entities comply Blanket compliance statements such as, the TPA/MGA must be responsible for all compliance issues does not go far enough 39

41 Responding to Findings and Recommendations Acceptable Recognize non-compliance Be willing to implement recommendations Respond timely and completely Cooperate with the auditors Unacceptable Does not take prompt corrective action to resolve non-compliance Attempts to defend deficient SIU practices Does not adequately address findings and recommendations Does not respond timely 40

42 First Line of Defense Insurers are the first line of defense against insurance fraud. We value our partnership with the insurance industry. Together we make a difference in the fight against insurance fraud. 41

43 Thank You! Narrated by: James Hassan Written by: California Department of Insurance Enforcement Branch SIU Compliance Program Produced by: California Department of Insurance Information Technology Division Web Services Bureau 42