California law requires insurers writing certain lines of business to maintain a Special Investigation Unit (SIU) or contract with one. The SIU is responsible for helping detect, investigate, and prevent insurance fraud, working closely with the California Department of Insurance (CDI) Fraud Division and law enforcement.
Core Requirements for SIUs
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Detect, Investigate, and Document Suspected Fraud
- SIUs must have systems in place to identify potential fraudulent claims or applications.
- They must conduct investigations into red-flagged cases and properly document all findings, including supporting evidence and analysis.
- Documentation should be sufficient to demonstrate that the insurer took fraud indicators seriously and followed through with investigation procedures.
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Refer Suspected Fraud Cases to the Fraud Division
- If fraud is reasonably suspected, the SIU must file a Suspected Fraudulent Claim (SFC) report with the CDI’s Fraud Division.
- Referrals must be timely and include all relevant documentation (e.g., claim forms, statements, medical reports, investigative findings).
- Failure to report suspected fraud can subject the insurer to regulatory penalties.
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Maintain Detailed Records of Training and Investigation Outcomes
- Insurers must train their claims adjusters, SIU staff, and other relevant personnel to recognize indicators of fraud.
- Training must be documented (dates, topics, attendees, materials).
- SIUs must also keep detailed records of all investigations and their outcomes, whether the case was referred, closed, or confirmed fraudulent.
- These records must be available for CDI audits and regulatory review.
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Cooperate Fully with Law Enforcement and CDI
- SIUs must make records available to CDI investigators upon request.
- They must respond to CDI inquiries promptly, provide access to claims files, and share evidence.
- Full cooperation is also required with district attorneys, law enforcement agencies, and other regulatory bodies pursuing insurance fraud cases.
Additional SIU Obligations
- Anti-Fraud Plan: Each insurer must submit an annual anti-fraud plan to the CDI describing its SIU operations, staff qualifications, and fraud detection measures (§2698.40).
- Accessibility: SIU contact information must be clearly available to CDI and law enforcement.
- Proportionality: Insurers can contract with an outside SIU vendor if they lack sufficient resources to maintain their own in-house unit.
- Exemptions: Smaller insurers may be exempt from maintaining a full SIU if they write below certain premium thresholds, but they still must comply with fraud reporting obligations.
