Frequently Asked Questions
About Fraud Prevention Plans And Special Investigations Units

- What Insurers Need to Know

Section 409 of the New York Insurance Law and Regulation 95 require insurers to file with the Department of Financial Services, Financial Fraud & Consumer Protection Division, Criminal Investigations Unit, Insurance Frauds Bureau a plan for the detection, investigation and prevention of insurance fraud. The Fraud Prevention Plan must include provisions for establishing a Special Investigations Unit (SIU), apart from any underwriting or claims units, to perform these functions. The following questions and answers provide information that may be useful to insurers in implementing this mandate.

• The New York Insurance Law permits insurers to use the services of an outside contractor to perform the functions of an SIU. What requirements must an insurer fulfill when using an outside contractor?

  Answer: Regulation 95 86.6(b)(1) An insurer that uses an outside contractor to perform SIU functions must include with its Fraud Prevention Plan a copy of the executed agreement between the insurer and the contractor. The insurer remains responsible for the development and implementation of its Fraud Prevention Plan.

• What is meant by an open budget line for an SIU?

  Answer: Each SIU should be established as a separate unit with its own budget line. The Department will review the source of each SIU’s funding.

• Besides establishing an SIU, what other provisions must be included in Fraud Prevention Plans?

  Answer: Fraud Prevention Plans must also include provisions for in-service training programs for investigative, underwriting and claims staff in identifying and evaluating suspected insurance fraud; development of public awareness programs; and development of a Fraud Detection and Procedures Manual, among other requirements of Section 409(c).

• Section 409 of the Insurance Law and Regulation 95 require insurers to submit an annual report to the Department. When is the report due? What information must the report contain?

  Answer: The report is due no later than March 15 of each year. The Department has developed a specific form, the "Annual SIU Report," designed to generate required information about the insurer's experience, performance and cost effectiveness in implementing the Fraud Prevention Plan. Insurers are required to file their reports electronically through a secured environment on the Department's portal Web site. Instructions for electronic filing can be found on the Web site.

• What details is an insurer required to provide regarding the staffing of a Special Investigations Unit?

  Answer: The Plan must include the name, title, job description and geographical location of each investigator in the SIU. Insurers must demonstrate that investigators meet the qualifications specified by Section 409 (b)(3) and Regulation 95 86.6(c).

• Is there a requirement for an SIU to include a minimum number of investigators?

  Answer: No. Each company has broad latitude in deciding how much of its resources will be dedicated to fraud prevention. However, companies must justify the adequacy of these resources.

• SIU investigators hired after September 10, 1996 must be qualified by specific education and/or experience as outlined. Regulation 95 86.6(c). Among these qualifications is an associate's or bachelor's degree in criminal justice or a related field. What are some related fields?

  Answer: Related fields include police science, forensic science, government/public administration, security management and pre-law. Other fields will be considered if they meet certain requirements.

• What is meant by the vulnerability of an insurer?

  Answer: Vulnerability means the risk of potential loss from fraud, which varies from company to company. It is an important factor for insurers to consider when preparing a Fraud Prevention Plan. For example, strict underwriting guidelines coupled with thorough investigations of all policy applicants will decrease vulnerability.

• Are insurers required to develop a Fraud Detection and Procedures Manual?

  Answer: Yes. Section 409(c)(6) requires that insurer Fraud Prevention Plans provide for the development of such a manual for use by underwriting, claims and investigative personnel. If the Manual is available in hard copy, insurers are requested to submit it to the Department. However, if the Manual is an electronic version available for internal use only, the Department uses various methods to verify the existence of the Manual.

• Are an insurer’s Fraud Prevention Plan or Fraud Detection and Procedures Manual subject to New York State’s Freedom of Information Act?

  Answer: No. Section 409(e) of the New York Insurance Law states that "Any plan and the information contained therein, or correspondence related thereto, or any other information furnished to this section shall be deemed to be a confidential communication and shall not be open for review or be subject to a subpoena except by court order or by request from any law enforcement agency or authority."

Frequently Asked Questions About Amendment to Insurance Law Section 405 and Rate Evasion Reports

Section 405(d) of the New York Insurance Law requires that the Insurance Frauds Bureau report to the Governor by March 15 of each year the incidence of misrepresentations by insureds of the principal place where their vehicles are garaged and/or driven in order to obtain a lower insurance premium in the prior year. The following questions and answers provide information that may be useful to insurers in implementing this mandate.

• How does the Fraud Bureau compile these data?

  Answer: The Insurance Frauds Bureau issued a data call on December 10, 2010 requiring insurers to provide these data to the Bureau by February 15, 2011. The data call requested specific information concerning misrepresentations by New York residents that involved locations within New York State, as well as locations outside New York State, as delineated in Section 405(d)(11).

• Are all licensed insurers required to provide these data?

  No. Only licensed property/casualty insurers writing private passenger automobile insurance with 3,000 or more policies in effect are required to submit these data.

• Will the Frauds Bureau require these data every year?

  Yes. A data call will be issued every year for the data required by Section 405(d)(11).

• Will an insurer's data be available for public review?

  No. Aggregated data will be reported to the Governor in the Bureau's Annual Report. However, in accordance with Section 409(e) of the New York Insurance Law, individual company data will not be released to the public.

An overview and the general requirements of the Rate Evasion Form, as well as instructions for completing the form can be found on the Department’s Web site. Just select Insurers, then Fraud and scroll down to “Instructions for Completing the Rate Evasion Form” on the menu.