Insurer responsibilities

California law gives insurers clear responsibilities to help detect, prevent, and report insurance fraud. These duties come from the California Insurance Code and are enforced by the California Department of Insurance (CDI). The purpose is to keep insurers actively involved in protecting consumers, reducing fraud, and supporting the financial stability of the insurance marketplace.

Key requirements:

Special Investigation Unit (SIU)

• Every insurer doing business in California (unless exempt) must establish and maintain a dedicated SIU.
• The SIU reviews suspicious claims, identifies potential fraud, and refers suspected cases to CDI’s Fraud Division.
• SIUs may be internal departments or contracted third-party vendors, but they must operate under CDI’s standards.

Anti-fraud plans

• Insurers must submit detailed anti-fraud plans to CDI, typically updated annually.
• These plans must describe how the insurer will detect, investigate, and report suspected fraud, including staffing, training, and claim review procedures.
• Failure to submit or maintain an adequate plan may result in administrative penalties.

Training of SIU staff and key personnel

• Insurers must ensure that SIU employees, claims adjusters, and other key anti-fraud personnel are properly trained in fraud detection and reporting requirements.
• Training must cover applicable California laws, fraud indicators, reporting protocols, and coordination with law enforcement.
• Regular refresher training helps keep staff current as fraud schemes change.

Cooperation with CDI investigations

• Insurers must cooperate fully with CDI investigations, including providing documents, claim files, and testimony when requested.
• Failure to cooperate can result in disciplinary action and fines.

Exceptions

• Under CIC Title 10, §2698.30(k), certain smaller insurers may be exempt from some SIU requirements.
• These exemptions generally apply to insurers with limited premium volume or lines of business where the fraud risk is relatively low.
• However, even exempt insurers must still meet the basic legal requirement to report suspected fraud to CDI.

Together, these requirements make insurers a first line of defense against fraud. By requiring SIUs, anti-fraud plans, staff training, and cooperation with CDI, California law supports a coordinated system that improves fraud detection, helps law enforcement, and reduces the higher premiums and market instability that can result from fraudulent claims.

Example question

Golden Coast Casualty writes a large book of auto and homeowners insurance in California. To cut costs, management proposes eliminating its in-house Special Investigation Unit (SIU) and simply letting regular claims adjusters “keep an eye out” for fraud. They do not plan to contract with any outside SIU vendor or file anti-fraud plans with the CDI.

Is this approach compliant with California SIU requirements?