California law places clear responsibilities on insurers to actively participate in the detection, prevention, and reporting of insurance fraud. These obligations are outlined in the California Insurance Code and enforced by the California Department of Insurance (CDI). The goal is to ensure insurers maintain a proactive role in protecting consumers, reducing fraudulent activity, and safeguarding the financial stability of the insurance marketplace.
Key Requirements:
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Special Investigation Unit (SIU)
- Every insurer doing business in California (unless exempt) must establish and maintain a dedicated SIU.
- The SIU is responsible for reviewing suspicious claims, identifying potential fraud, and referring 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. \
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Anti-Fraud Plans
- Insurers are required to submit detailed anti-fraud plans to CDI, typically updated annually.
- These plans must explain 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.
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Training of SIU Staff and Key Personnel
- Insurers must ensure that SIU employees, claims adjusters, and any other integral 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 ensure staff remain current with evolving fraud schemes.
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Cooperation with CDI Investigations
- Insurers are legally obligated to cooperate fully with CDI investigations, including providing documents, claim files, and testimony when requested.
- Lack of cooperation 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 comply with the basic legal requirement to report suspected fraud to CDI.
These requirements ensure that insurers themselves act as the first line of defense against fraud. By mandating SIUs, anti-fraud plans, staff training, and cooperation with CDI, California law creates a coordinated system that improves fraud detection, supports law enforcement, and ultimately helps protect consumers from the higher premiums and instability caused by fraudulent claims.
