FAQs 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?

Regulation 95 86.6(b)(1) requires insurers that use an outside contractor to perform SIU functions to include with its Fraud Prevention Plan a copy of the executed agreement(s) between the insurer and the contractor(s). The insurer remains responsible for the development and implementation of its Fraud Prevention Plan. Insurers should also include the amount of time the contractor’s investigators are expected to devote to the insurer, e.g., one full-time investigator or 10 percent of the contractor’s investigative resources.

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 a public awareness program; 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. Annual Reports should be submitted electronically through the secured application, “Annual SIU Report”, 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 specific education or experience qualifications specified by Section 409 (b)(3) and Regulation 95 86.6(c).  Among these qualifications is an associate's or bachelor's degree in criminal justice or a related field such as police science, forensic science, government/public administration, security management and pre-law.

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.

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.

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, the information contained therein, or correspondence related thereto, or any other information furnished pursuant 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."