Texas Insurance Code CHAPTER 701 INSURANCE FRAUD INVESTIGATIONS

1. Texas Department of Insurance Fraud Unit Texas Insurance Code CHAPTER 701 INSURANCE FRAUD INVESTIGATIONS

2. 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

3. INSURANCE FRAUD COST Insurance fraud costs each U.S. family more than $1,000 per year! Source: Coalition Against Insurance Fraud Property & Casualty = $30B Life, Health, Disability = $90B $120B/year

4. Organizational Chart

5. 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

6. 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

7. Fraud Unit History 1991 – 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

8. Fraud Unit History 1995 – 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

9. 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

10. Criminal Laws That Govern Insurance Fraud in Texas • Texas Labor Code (penal violations) • Texas Insurance Code (penal violations) • Unauthorized insurance • False statements • Texas Penal Code • Chapter 35 • Theft statutes • Misapplication of fiduciary funds • Federal Statutes • 18 U.S. Code Sections 1033 and 1034 • Mail fraud • Wire fraud

11. 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

12. 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

13. 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

14. 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/policies

15. 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

16. 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.

17. Criminal Analysts • Analysis of financial records • Link chart analysis • Photo line-ups • Criminal history queries • May provide testimony in criminal proceedings

18. 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

19. 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

20. 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

22. 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 closed

23. 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

25. The Sentence • 12 Years – Texas Department of Criminal Justice (Corrections Division) • Fine - $3,000 • Restitution - $1.2 million

26. Performance Measures

27. FY 2012 Annual Statistics

29. 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

30. 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

31. 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

32. Insurance Fraud Hotline1-888-327-8818 Online Fraud Reporting Available www.tdi.texas.gov/fraud