Suspected Insurance Fraud: Agent Duties

Insurance agents serve on the front lines of fraud detection because they interact directly with applicants and policyholders. California law and industry standards place a duty on agents to act as the first line of defense in protecting the insurance marketplace from fraud.

Recognize Red Flags and Fraud Indicators

Agents must stay alert to warning signs of possible fraud, which may include:

• Inconsistent or incomplete application information
• Requests for unusually high coverage limits without justification
• Suspicious timing of claims (e.g., immediately after a policy is issued)
• Signs of staged accidents, faked injuries, or inflated repair estimates
• Applicants who resist providing standard documentation

Agents should be familiar with these indicators and exercise sound judgment when reviewing applications and claims.

Immediate Notification to the Insurer’s SIU

When fraud is suspected, the agent’s role is not to investigate, but to report. The agent must notify the insurer’s Special Investigation Unit (SIU) right away, providing all relevant details and documentation. Timely reporting allows the SIU to fulfill its legal obligations under Cal. Ins. Code §1872.41, which requires insurers to refer fraud cases to CDI.

In most cases, the insurer’s SIU is responsible for forwarding suspected fraud to the California Department of Insurance (CDI). However, if an agent is directly instructed by the insurer or discovers fraud in a situation where the SIU is not yet engaged, the agent should follow company policy to ensure CDI receives the necessary referral.

Document and Report — Do Not Accuse

It is critical that agents avoid making direct accusations to customers or claimants. Instead, agents should:

• Carefully document observations and communications in writing
• Maintain a professional, neutral tone in all reports
• Leave the determination of fraud to the SIU and CDI investigators

As an agent, you are not a fraud investigator—but a fraud reporter. Your role is to spot, document, and refer concerns, leaving the investigation and prosecution to SIUs, CDI, and law enforcement. This approach protects you (the agent) from liability and ensures that fraud prevention efforts are handled lawfully and effectively.

Here’s a Fraud Red Flags Checklist you can use as a practical quick-reference in your real world interactions:

(For educational purposes – not exhaustive. Always follow company SIU and CDI reporting guidelines.)

Insurance professionals must be trained to recognize “red flags” that may indicate fraud during both the underwriting and claims stages. While a single indicator does not prove fraud, multiple factors together may warrant closer review or referral to a Special Investigation Unit (SIU).

Underwriting Fraud Indicators

• Inconsistent Personal or Vehicle Information: Mismatches between the applicant’s stated details and public records, such as incorrect VIN numbers, mismatched addresses, or false employment information, may suggest intentional misrepresentation.
• Suspicious Application Patterns: Applications submitted with vague answers, frequent last-minute changes, or use of multiple addresses and phone numbers can raise concerns.
• Prior Cancellations for Misrepresentation: A history of past policy cancellations due to misstatements or nonpayment is a strong signal of potential fraudulent intent.

Claims Fraud Indicators

• Delays in Reporting: Legitimate claims are usually reported promptly. Long delays in reporting losses may indicate the claimant is attempting to stage or exaggerate a loss.
• History of Frequent Claims: A pattern of repeated claims, especially across different insurers, can point to organized fraud or abuse.
• Suspicious Documentation or Photos: Altered invoices, inconsistent receipts, or staged photographs of damage are frequent fraud indicators.
• Claims Filed Shortly After Policy Inception: A loss reported very soon after a policy is issued may suggest that the claimant never intended legitimate coverage, but instead purchased the policy to make a fraudulent claim.