Why the Fraud Division exists

Insurance fraud isn’t a victimless crime - it affects every consumer and every insurer in California.

Because of that impact, the California Legislature created a comprehensive framework in Insurance Code §§1871-1871.4 to establish and empower the Fraud Division of the California Department of Insurance (CDI).

• Purpose of creation - The Fraud Division was created to reduce insurance fraud across major lines of insurance, including:

  • Health insurance fraud (false medical billing, fraudulent disability claims)
  • Automobile insurance fraud (staged collisions, false injury claims, inflated repair bills)
  • Property insurance fraud (arson-for-profit, exaggerated theft losses)
  • Workers’ compensation fraud (false injury claims, employer premium fraud, provider billing fraud)
  • Other lines where misrepresentation or false claims cause financial harm

• Economic impact of fraud - Fraud drives premiums up for honest consumers because insurers spread the cost of false claims across all policyholders. Large-scale fraud schemes can also threaten an insurer’s solvency, which can destabilize the insurance marketplace.

• Public policy goal - By deterring fraud and supporting the prosecution of offenders, the Fraud Division helps maintain public trust in the insurance system. The goal is to ensure benefits are paid only to people who are legitimately entitled to them.

• Collaboration with other entities - The Fraud Division doesn’t work alone. It coordinates closely with:

  • Local district attorneys - who prosecute insurance fraud cases at the county level.
  • Other law enforcement agencies - such as police, sheriff’s departments, and federal investigators when cases cross jurisdictions.
  • The insurance industry - which provides referrals, evidence, and financial support through fraud assessment funding mandated by law.

• Comprehensive strategy - The statutes (CIC §§1871-1871.4) set out a statewide program of investigation, prosecution, and prevention. The framework reflects a practical reality: fighting fraud requires shared resources and consistent enforcement across California.

The Fraud Division exists because fraud undermines fairness in the insurance marketplace.

By investigating fraudulent claims, coordinating with prosecutors, and partnering with insurers, the Division plays a central role in controlling costs, protecting consumers, and supporting the solvency of California’s insurance industry.