The Office of General Counsel issued the following opinion on July 19, 2007 representing the position of the New York State Insurance Department.
Internal Audit Reporting Requirements
Are insurers required to report the results of all internal fraud investigations to the Insurance Department? If so, how often are insurers required to report such results?
Pursuant to N.Y. Ins. Law § 409 (McKinney 2006), all insurers are required to implement fraud prevention plans to combat insurance fraud and to report their findings to the Superintendent on an annual basis. Moreover, pursuant to Insurance Law § 405(a), any person who has reason to believe that an insurance transaction is fraudulent, or has knowledge that one will take place, or has taken place, must “within thirty days after determination by such person that the transaction appears to be fraudulent” report the activity to the Department’s Frauds Bureau.
The inquirer reports that the insurer that it represents has set up an internal fraud investigation unit to look into consumer fraud, as required by the Insurance Law. The inquirer asks whether the insurer is obligated to report the results of its investigations even if no fraud is found, and if so, how often it is required to submit such reports to the Insurance Department.
The inquirer asks whether insurers are required to report the results of their internal fraud investigations if no fraud is found, and if so, how often. Insurance Law § 409(a) is relevant to your inquiry. That statute provides in pertinent part as follows:
(a) Every insurer writing private or commercial automobile insurance, workers’ compensation insurance, or individual, or group or blanket accident and health insurance policies issued for delivery in this state, except for insurers that write less than three thousand of such policies, issued or issued for delivery in this state annually, and every entity licensed pursuant to article fort-four of the public health law except those entities with an enrolled population of less than sixty thousand persons in the aggregate and, except those entities licensed pursuant to sections forty-four hundred three-a, forty-four hundred three-c, forty-four hundred three-d, forty-four hundred three-f and forty-four hundred eight-a of the public health law shall, . . . file with the superintendent a plan for the detection, investigation and prevention of fraudulent insurance activities in this state and those fraudulent insurance activities affecting policies issued or issued for delivery in this state. . . (Emphasis added.)
Thus, except for the exceptions delineated therein, § 409(a) requires all insurers who write private or commercial automobile insurance, workers’ compensation insurance, or individual or group or blanket accident and health insurance issued for delivery in New York to file a fraud detection, investigation and prevention plan with the Department.
Additionally, Insurance Law § 409(b)(1) requires the plan to “provide the time and manner in which such plan shall be implemented, including provisions for a full-time special investigations unit and staffing levels within such unit.”1
Insurance Law § 409(g), which provides that “[e]very insurer required to file a fraud prevention plan shall report to the superintendent on an annual basis,” squarely answers your inquiry. Therefore, insurers must report the findings of their investigations to the Superintendent annually, regardless of whether fraud is found. Moreover, pursuant to Insurance Law § 405(a), any person who has reason to believe than an insurance transaction is fraudulent, or has knowledge that one will take place, or has taken place, must “within thirty days after determination by such person that the transaction appears to be fraudulent” report such activity to the Department’s Frauds Bureau.
For further information you may contact D. Monica Marsh Associate Attorney at the New York City Office.
1 Please note that Insurance Law § 409(b)(2) permits insurers, in lieu of an internal special investigations unit, to contract with qualified outside independent investigators for the creation of a fraud prevention program.