1. 1 Texas Insurance Code CHAPTER 701 INSURANCE FRAUD INVESTIGATIONS Texas Department of Insurance Fraud Unit

2. 2 Mission To protect insurance consumers by regulating the industry fairly and diligently promoting a stable and competitive market providing information that makes a difference The Fraud Unit protects the public from economic harm by investigating allegations of criminal insurance fraud

3. INSURANCE FRAUD COST Insurance fraud costs each U.S. family more than $1,000 per year! Source: Coalition Against Insurance Fraud Property & Casualty = $ 30B Life, Health, Disability = $ 90B $ 120B/year 3

4. Organizational Chart 4

5. Fraud Unit Sections Insurer Fraud Investigates allegations of fraudulent activity by insurance company employees or unlicensed entities/individuals Claim Fraud Investigates allegations of fraud against an insurance company by consumers Investigates allegations of workers compensation fraud Administrative Office Supports investigative teams and management 5

6. The Fraud Unit Investigates insurance fraud cases for referral to district attorneys and federal prosecutors. Fraud Unit staff includes: Certified peace officers (31) Average 22 years law enforcement – investigation experience; TDI experience = six years Attorneys (4) Average 12 years criminal law experience; TDI experience = nine years Nationally recognized fraud prosecutor program Certified fraud examiners (4) Fraud analysts (2) Administrative staff 6

7. Fraud Unit History 1991 – Statute establishing the TDI Fraud Unit Sec. 701.101 Insurance Fraud Unit (a) The purpose of the department's insurance fraud unit is to enforce laws relating to fraudulent insurance acts Sec. 701.001 Definitions (2) "Fraudulent insurance act" means an act that is a violation of a penal law and is: (A) committed or attempted while engaging in the business of insurance; (B) committed or attempted as part of or in support of an insurance transaction; or (C) part of an attempt to defraud an insurer 7

8. Fraud Unit History 1995 – Statute enhancing Fraud Units investigative authority Licensed by TCLEOSE as a law enforcement agency Employed peace officers as insurance fraud investigators Acquired access to the FBI National Crime Information Center (NCIC) Expanded the Penal Code offense of insurance fraud 2005 – Statute enhancing the Penal Code offense of insurance fraud Extended the statute of limitations from three years to five years Added insurance application fraud as an offense Established an aggregation clause for multiple claims Expanded statute to include all lines of insurance 8

9. Chapter 701 Key Statutory Provisions §701.051 Duty to Report §701.052 Immunity §701.106 Subpoena Authority §701.151 Confidentiality of Information §701.154 Disclosure of Information 9

10. Criminal Laws That Govern Insurance Fraud in Texas Texas Labor Code (penal violations) Texas Insurance Code (penal violations) Unauthorized insurance False statements Texas Penal Code Chapter 35 Theft statutes Misapplication of fiduciary funds Federal Statutes 18 U.S. Code Sections 1033 and 1034 Mail fraud Wire fraud 10

11. Proving a Criminal Fraud Case TX Penal Code Sec 6.02, culpable mental state (1) intentional (2) knowing (3) reckless (4) criminal negligence Documentary evidence Business records, banking records, claim files, correspondence, etc. Testimonial evidence Obtained through interviews 11

12. Insurance Fraud Is Intentional Committed against an insurance company or a consumer For financial gain or personal benefit May occur during the process of buying, using, selling, or underwriting insurance Motivated by greed and or financial distress 12

13. Elements of a Comprehensive Fraud Report Names of persons Date(s) act occurred Claim payment or value Claim location Description of suspected claim or fraudulent act Description of supporting documents Complainants contact information 13

14. Types of Insurance Fraud Agent/adjuster Company officer Unauthorized/ unlicensed entity Claim fraud Health insurance Ins premium conversion Organized fraud schemes Life insurance Arson Provider fraud Disability fraud Workers comp fraud Application fraud Mortgage/title insurance Fraudulent insurance plans/policies 14

15. Who Commits Insurance Fraud Agents, adjusters, insurance company employees, and their executives Medical practitioners and providers Attorneys Organized fraud rings Policy owners Third-party claimants 15

16. Intake Agency receives 11,000-12,000 reports of fraud annually thru various reporting means. Each report is read and evaluated by admin staff to determine whether it meets criteria for investigation. If approved for investigation, intake documents are entered into case management system for further action. If no action is to be taken, information is entered into CMS and documents are filed. The report may also be referred to another section within TDI for further action. 16

17. Criminal Analysts Analysis of financial records Link chart analysis Photo line-ups Criminal history queries May provide testimony in criminal proceedings 17

18. The Investigation Receive report of suspected fraud Conduct interviews Acquire and analyze financial, business, banking, and legal documents Document the flow of money transactions Develop link associations of business and individuals Prepare comprehensive investigative report Testify in criminal proceedings 18

19. Elements of a Successful Insurance Fraud Investigation Access to information Tenacity, determination, and commitment Skillful analysis of documentation Careful interview and interrogation Appropriate laws Clear and concise reporting Willing prosecutors 19

20. Prosecution Referral Report Accurate Written in plain language Impartial Include description of each offense Identify all suspects and witnesses Illustrate the flow of money or association of people Answer who, what, when, where, and how the offense was committed Support the case with evidence 20

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22. Adjuster Fraud Scheme Assumed name of legitimate business Used a deceased relatives bank account and a P.O. box under the assumed company name Started small and tested claims/payment system Payments entered into workers comp claim files for alleged medical treatment Payments issued when file was being closed 22

23. The Investigation Gathered facts, interviewed witnesses Identified bank accounts, credit cards, loans, and post office box records Prepared analysis of 12 years of bank account transactions, followed the flow of money Documented the theft Worked with TDIs Fraud prosecutor to prepare referral 23

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25. The Sentence 12 Years – Texas Department of Criminal Justice (Corrections Division) Fine - $3,000 Restitution - $1.2 million 25

26. Performance Measures Measure CodeMeasure Description 1.2.3 oc 2 2.2.2 oc 4 2.2.3 oc 5 Percent of referrals to state and federal prosecutors resulting in legal action 1.2.3 op 1 (Key) 2.2.2 op 1 (Key) 2.2.3 op 1 Number of referrals of alleged fraud to state and federal prosecutors 1.2.3 op 2 2.2.2 op 2 2.2.3 op 2 Dollar amount of court ordered restitution for fraud cases referred 1.2.3 ef 1 2.2.2 ef 1 2.2.3 ef 1 Average number of days per fraud case referred 1.2.3 ex 1 2.2.2 ex 2 2.2.3 ex 2 Estimated dollar amount of fraud referred 1.2.3 ex 2 2.2.2 ex 1 2.2.3 ex 1 Number of reports of fraud received 26

27. FY 2012 Annual Statistics Fraud reports received12,736 Cases opened for investigation518 Cases referred for prosecution215 Amount of fraud identified in referred cases$35,875,000 Indictments resulting from investigations134 Judgments from cases referred88 Restitution assessed by courts on Fraud Unit cases$2,417,347 Subpoenas issued483 Open records requests processed86 27

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29. Initiatives Host the 15 th Annual Fraud Conference, Feb 11 –12, 2013 Identify and obtain a CMS to auto import suspected fraud reports Evaluate opportunities for the consolidation of performance measures Expand the Special Prosecutor initiative 29

30. Challenges Recruit, hire, and retain qualified personnel Training – peace officer safety Data management – data analysis of key metrics Spatial storage, and physical security issues Staying ahead of the next big scheme 30

31. Whats Next Hire key personnel Obtain training in the latest techniques to investigate financial/business transactions Enhance internal and external relationships Evaluate opportunities to expand the special prosecutor initiative in Texas Balance our statutory duties while protecting the integrity of criminal evidence 31

32. Insurance Fraud Hotline 1-888-327-8818 Online Fraud Reporting Available www.tdi.texas.gov/fraud 32