Why the Fraud Division Exists

Insurance fraud is not a victimless crime — it affects every consumer and every insurer in California. For this reason, the California Legislature created a comprehensive framework under 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 established to reduce the incidence of insurance fraud across all 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 create financial harm

• Economic Impact of Fraud – Fraudulent activity leads directly to higher premiums for honest consumers, as insurers must spread the cost of false claims across all policyholders. Additionally, large-scale fraud schemes can threaten insurer solvency, undermining the financial stability of the insurance marketplace.

• Public Policy Goal – By deterring fraud and prosecuting offenders, the Fraud Division helps maintain public trust in the insurance system, ensuring that benefits are paid only to those who are legitimately entitled.

• Collaboration with Other Entities – The Fraud Division does not work in isolation. 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) outline a statewide program of investigation, prosecution, and prevention, recognizing that fighting fraud requires combined resources and consistent enforcement across California.

The Fraud Division exists because fraud undermines fairness in the insurance marketplace. By investigating fraudulent claims, collaborating with prosecutors, and partnering with insurers, the Division plays a critical role in controlling costs, protecting consumers, and maintaining the solvency of California’s insurance industry.