Iowa Insurance Fraud and Producer Responsibilities

The Iowa Insurance Fraud Act (Iowa Code Chapter 507E)

Fraud crosses the line from unfair trade practice into criminal territory. Iowa Code Chapter 507E (sections 507E.1 through 507E.8) codifies the Iowa Insurance Fraud Act:

• 507E.1 — Short title. Establishes the chapter as the Iowa Insurance Fraud Act.
• 507E.2 — Purpose. Creates IID’s Insurance Fraud Bureau and lets the Division administer oaths, serve subpoenas, and collect evidence when investigating possible violations.
• 507E.2A — Definitions. Defines “insurance” and “insurer”; “insurer” does not include a person licensed as a producer under Iowa Code Chapter 522B.
• 507E.3 — Fraudulent submissions. Makes it a class “D” felony to present to an insurer, with intent to defraud, a claim or application document or statement the person knows contains false information concerning a material fact.
• 507E.3A — Fraudulent sales practices. Makes willful fraud in the sale, solicitation, or negotiation of insurance a class “D” felony, or a class “C” felony when the loss exceeds $10,000.
• 507E.4 — Information outside the state. Directs the Insurance Fraud Bureau to seek enforcement information held by persons outside Iowa.
• 507E.5 — Confidentiality. Makes the Insurance Fraud Bureau’s investigation files and reports confidential records.
• 507E.6 — Duties of insurer. Requires an insurer that believes a claim or application is fraudulent to notify IID’s Insurance Fraud Bureau in writing within 60 days; the bureau reports any violation it finds to the licensing agency or prosecutor.
• 507E.7 — Immunity. Provides immunity for good-faith reporting of suspected fraud.
• 507E.8 — Law enforcement authority. Gives Division employees designated as peace officers the powers of law enforcement officers, including the power to arrest.

Common Patterns

• Application fraud. Lying on an application — hiding a medical condition, falsifying the garaging address, omitting a driving conviction.
• Claims fraud. Submitting a false claim — staged accident, inflated injury, arson, billing for services never rendered.
• Premium fraud / theft. A producer collects premiums from clients and pockets the money instead of remitting it to the insurer.
• Producer fraud. Selling policies in companies the producer does not represent, forging applications, churning books of business.

Penalties for fraud are layered: criminal prosecution (a class “D” felony, or a class “C” felony for fraudulent sales practices causing a loss over $10,000), license revocation or other discipline by IID, civil liability to harmed parties, and, after a conviction for a felony involving dishonesty or breach of trust, a bar from the business of insurance unless the Commissioner gives written consent.

Producer Responsibilities (Iowa Admin Rule 191-15.8)

Iowa Admin Rule 191-15.8 establishes producer responsibilities and prohibited acts. Highlights include:

• Honest representation. Producers must accurately represent themselves, their products, and the insurers they represent.
• Identification before a sales presentation. Before beginning an insurance sales presentation, a producer must tell the prospective purchaser that the producer is acting as an insurance producer and give the producer’s full name and the full name of the insurer the producer will represent (Iowa Admin Rule 191-15.8(1)).
• Transaction records. A producer must keep usual and customary records of the insurance transactions the producer undertakes, at the producer’s place of business and open to the Commissioner’s inspection, for at least three years after each transaction is completed (Iowa Code 522B.16A).
• Prohibited acts. Iowa Admin Rule 191-15.8 prohibits undue-pressure sales tactics, executing a transaction without the customer’s authorization, soliciting or accepting personal loans, or gifts, from a customer that exceed $250 in the aggregate (a separate $250 limit for each), and being named a customer’s beneficiary, executor, or trustee (unless the customer is immediate family). Misappropriating premiums, fraudulent practices, and forging another’s name to an application are grounds for license action under Iowa Code 522B.11.

Iowa Code 515.103 governs an insurer’s use of credit information in personal lines property and casualty insurance, covered in the next section.

Use of Credit Information in P&C Underwriting (P&C Exams Only)

Iowa permits the use of credit-based insurance scoring in personal lines property and casualty underwriting, subject to consumer protections:

• Notification. An insurer using credit information must disclose to the applicant that credit information will be used, generally at the time of application.
• Adverse action. If the insurer takes adverse action (declines coverage, charges a higher premium, or refuses to renew) based in whole or in part on credit information, the insurer must provide the applicant or insured with notice of the adverse action and information about the source of the credit information.
• Federal overlay. Iowa’s rules sit on top of the federal Fair Credit Reporting Act (FCRA), which provides additional consumer rights including the right to dispute inaccurate credit information.
• Limitations. Iowa law prohibits certain uses of credit information — for example, an insurer may not deny, cancel, or refuse to renew a policy solely on the basis of credit information, and it may consider an absence of credit history only by treating the consumer as having neutral credit information or by leaving credit out of the decision.