"The Need for Insurance Fraud Criminal Statutes
And Prosecution of Insurance Fraud"
Barry Zalma
ClaimSchool, Inc.
© 2009
Barry Zalma
Insurance fraud laws have been enacted in 48 of the 50 states. The statutes were not written to give an unfair advantage to insurers, as some members of the plaintiffs’ bar claim, but to protect the insurance buying public against the enormous disadvantage insurers meet when faced with a potentially fraudulent claim.
Unlike other victims of crimes, insurers are required by most of the statutes, to staff Special Investigative Units (SIU) to investigate and work to defeat insurance fraud attempts.
This Article will explain the need for the insurance fraud statutes, why they are effective, why the provide a qualified immunity to insurers, and how they help to reduce the multi-billion dollar insurance fraud industry.
Insurance SIU operations must comply with the statutory requirements. That means that they must conduct a thorough investigation before making a decision on a claim or reporting a claim to prosecutors that they have a good faith belief that a person insured is attempting fraud. I have written extensively in these columns and in my books describing what is required to complete a thorough investigation.
Insurance fraud is not a local problem. It is a depletion of the wealth of the entire country. Insurance Departments are not designed to be prosecutorial agencies or police departments. Since the lawyer for the Department of Insurance of each state is the State Attorney General. A special unit should be established in the office of the Attorney General or States Attorney of each state, funded with the monies taken from the insurance industry to support the investigation and prosecution of the crime of insurance fraud. This unit should be given a simple mandate:
File and prosecute every insurance fraud brought to the unit by the Fraud Division that has a better than 50% chance of success.
The unit should not concentrate its efforts on major insurance frauds. Those can best be prosecuted by major fraud units already existing in the District Attorney’s offices and in offices of the US Attorney. The state’s unit should concentrate on prosecuting every-day-insurance fraud, the frauds of opportunity that take 90% of the money paid to fraud, in the range of $5,000 to $50,000. Single counts should be prosecuted. Teeth must be put in the posters that say "commit insurance fraud, go to jail."
Departments of Insurance are receiving reports from insurers of thousands of potential fraudulent claims a day. They do not have the staff, the ability or the desire to investigate and prosecute every case brought to them. If only 5 percent of those claims are investigated and prosecuted, the deterrent effect will be enormous. The Department of Insurance should issue a press release concerning every arrest and conviction. Newspapers should report daily that insurance criminals have been arrested and are going to trial or were convicted and are going to jail. Jail sentences should be made mandatory and remove from local judges the right to grant convicted felons of probation and restitution only.