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Texas Insurance Code CHAPTER 701

INSURANCE FRAUD INVESTIGATIONS

Texas Department of Insurance Fraud Unit

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Mission

To protect insurance consumers by• regulating the industry fairly and

diligently• promoting a stable and

competitive market• providing information that makes

a difference

The Fraud Unit protects the public from economic harm by investigating allegations of criminal insurance fraud

INSURANCE FRAUD COST

Insurance fraud costs each U.S. familymore than $1,000 per year!

Source: Coalition Against Insurance Fraud

Property & Casualty = $

30BLife, Health, Disability = $

90B $

120B/year

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Organizational Chart

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Texas Department of InsuranceCompliance Division Insurance Fraud Unit Section

(1) Attorney IV

(1) Program Specialist II

Claimant InvestigationsDirector

Manager III

Administration & Training OfficeDirector

Manager III

Insurance Fraud Unit Director III

Associate Commissioner

(1) Attorney V

(5) Investigator VII

(11) Investigator VI

(1) Investigator IV

(2) Attorney V

(2) Investigator VI

(1) Program Specialist III

(3) Program Specialist II

(2) Insurance Specialist III

Insurer InvestigationsDirector / Chief Investigator

Manager III

(10) Investigator VI

(4) Investigator VII

(1) Insurance Specialist II

Fraud Unit Sections Insurer Fraud

Investigates allegations of fraudulent activity by insurance company employees or unlicensed entities/individuals

Claim Fraud Investigates allegations of fraud against an insurance

company by consumers Investigates allegations of workers’ compensation

fraud Administrative Office Supports investigative teams and management

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The Fraud Unit Investigates insurance fraud cases for referral to

district attorneys and federal prosecutors. Fraud Unit staff includes:

Certified peace officers (31) Average 22 years’ law enforcement – investigation

experience; TDI experience = six years Attorneys (4)

Average 12 years’ criminal law experience; TDI experience = nine years

Nationally recognized fraud prosecutor program Certified fraud examiners (4) Fraud analysts (2) Administrative staff 6

Fraud Unit History1991 – Statute establishing the TDI Fraud Unit Sec. 701.101  Insurance Fraud Unit

(a) The purpose of the department's insurance fraud unit is to enforce laws relating to fraudulent insurance acts

Sec. 701.001  Definitions

(2)  "Fraudulent insurance act" means an act that is a violation of a penal law and is:

(A)  committed or attempted while engaging in the business of insurance;

(B)  committed or attempted as part of or in support of an insurance transaction; or

(C)  part of an attempt to defraud an insurer 7

Fraud Unit History1995 – Statute enhancing Fraud Unit’s investigative authority

Licensed by TCLEOSE as a law enforcement agency Employed peace officers as insurance fraud investigators Acquired access to the FBI National Crime Information Center

(NCIC) Expanded the Penal Code offense of insurance fraud

2005 – Statute enhancing the Penal Code offense of insurance fraud

Extended the statute of limitations from three years to five years

Added insurance application fraud as an offense Established an aggregation clause for multiple claims Expanded statute to include all lines of insurance

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Chapter 701 Key Statutory Provisions

§701.051 Duty to Report

§701.052 Immunity

§701.106 Subpoena Authority

§701.151 Confidentiality of Information

§701.154 Disclosure of Information

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Criminal Laws That Govern Insurance Fraud in Texas

Texas Labor Code (penal violations)

Texas Insurance Code (penal violations)Unauthorized insurance

False statements

Texas Penal CodeChapter 35

Theft statutes

Misapplication of fiduciary funds

Federal Statutes18 U.S. Code Sections 1033 and 1034

Mail fraud

Wire fraud10

Proving a Criminal Fraud Case

TX Penal Code Sec 6.02, culpable mental state

(1) intentional(2) knowing(3) reckless(4) criminal negligence

Documentary evidence Business records, banking records, claim files,

correspondence, etc. Testimonial evidence

Obtained through interviews 11

Insurance Fraud Is

Intentional Committed against an insurance company or a

consumer

For financial gain or personal benefit May occur during the process of buying, using,

selling, or underwriting insurance Motivated by greed and or financial distress

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Elements of a Comprehensive Fraud Report

Names of persons Date(s) act occurred Claim payment or value Claim location   Description of suspected claim or fraudulent

act  Description of supporting documents Complainant’s contact information

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Types of Insurance Fraud Agent/adjuster Company officer Unauthorized/

unlicensed entity

Claim fraud Health insurance Ins premium

conversion Organized fraud

schemes

Life insurance Arson Provider fraud Disability fraud Workers’ comp fraud Application fraud Mortgage/title

insurance Fraudulent insurance

plans/policies14

Who Commits Insurance Fraud

Agents, adjusters, insurance company employees, and their executives

Medical practitioners and providers Attorneys Organized fraud rings Policy owners Third-party claimants

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Intake

Agency receives 11,000-12,000 reports of fraud annually thru various reporting means.

Each report is read and evaluated by admin staff to determine whether it meets criteria for investigation.

If approved for investigation, intake documents are entered into case management system for further action.

If no action is to be taken, information is entered into CMS and documents are filed.

The report may also be referred to another section within TDI for further action.

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Criminal Analysts

Analysis of financial records Link chart analysis Photo line-ups Criminal history queries May provide testimony in criminal

proceedings

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The Investigation

Receive report of suspected fraud Conduct interviews Acquire and analyze financial, business,

banking, and legal documents Document the flow of money transactions Develop link associations of business and

individuals Prepare comprehensive investigative report Testify in criminal proceedings

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Elements of a Successful Insurance Fraud Investigation

Access to information Tenacity, determination, and

commitment Skillful analysis of documentation Careful interview and interrogation Appropriate laws Clear and concise reporting Willing prosecutors

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Prosecution Referral Report

Accurate Written in plain language Impartial Include description of each offense Identify all suspects and witnesses Illustrate the flow of money or association of

people Answer who, what, when, where, and how

the offense was committed Support the case with evidence

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Adjuster Fraud Scheme

Assumed name of legitimate business Used a deceased relative’s bank account

and a P.O. box under the assumed company name

Started small and tested claims/payment system

Payments entered into workers’ comp claim files for alleged medical treatment

Payments issued when file was being closed22

The Investigation Gathered facts, interviewed witnesses Identified bank accounts, credit cards, loans,

and post office box records Prepared analysis of 12 years of bank account

transactions, followed the flow of money Documented the theft Worked with TDI’s Fraud prosecutor to prepare

referral

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The Sentence

12 Years – Texas Department of Criminal Justice (Corrections Division)

Fine - $3,000 Restitution - $1.2 million

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Performance MeasuresMeasure Code

Measure Description

1.2.3 oc 2 2.2.2 oc 42.2.3 oc 5

Percent of referrals to state and federal prosecutors resulting in legal action

1.2.3 op 1 (Key) 2.2.2 op 1 (Key) 2.2.3 op 1

Number of referrals of alleged fraud to state and federal prosecutors

1.2.3 op 22.2.2 op 22.2.3 op 2

Dollar amount of court ordered restitution for fraud cases referred

1.2.3 ef 1 2.2.2 ef 12.2.3 ef 1

Average number of days per fraud case referred

1.2.3 ex 12.2.2 ex 22.2.3 ex 2

Estimated dollar amount of fraud referred

1.2.3 ex 22.2.2 ex 12.2.3 ex 1

Number of reports of fraud received26

FY 2012 Annual StatisticsFraud reports received 12,736

Cases opened for investigation 518

Cases referred for prosecution 215

Amount of fraud identified in referred cases $35,875,000

Indictments resulting from investigations 134

Judgments from cases referred 88

Restitution assessed by courts on Fraud Unit cases

$2,417,347

Subpoenas issued 483

Open records requests processed 86

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Initiatives

Host the 15th Annual Fraud Conference, Feb 11 –12, 2013

Identify and obtain a CMS to auto import suspected fraud reports

Evaluate opportunities for the consolidation of performance measures

Expand the Special Prosecutor initiative

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Challenges Recruit, hire, and retain qualified

personnel Training – peace officer safety Data management – data analysis of

key metrics Spatial storage, and physical security

issues Staying ahead of the next big scheme

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What’s Next Hire key personnel Obtain training in the latest techniques to

investigate financial/business transactions

Enhance internal and external relationships

Evaluate opportunities to expand the special prosecutor initiative in Texas

Balance our statutory duties while protecting the integrity of criminal evidence

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Insurance Fraud Hotline

1-888-327-8818

Online Fraud Reporting Online Fraud Reporting AvailableAvailable

www.tdi.texas.gov/fraudwww.tdi.texas.gov/fraud

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