FAQs: Fraud Prevention Plans and Special Investigations Units (SIUs)

Section 409 of the New York Insurance Law and Regulation 95 require insurers to file a plan for the detection, investigation and prevention of insurance fraud with DFS. The Fraud Prevention Plan must include provisions for establishing a Special Investigations Unit (SIU), apart from any underwriting or claims units, to perform these functions. 

The following FAQs provide information that may be useful to insurers in implementing this mandate.

New York Insurance Law permits insurers to use the services of an outside contractor to perform the functions of an SIU. What requirements must an insurer fulfill when using an outside contractor?

Regulation 95 86.6(b)(1) requires insurers that use an outside contractor to perform SIU functions to include with its Fraud Prevention Plan copies of all executed contracts between the insurer and its contractors. The insurer remains responsible for compliance with Article 4 of the New York Insurance Law and Regulation 95 including development and implementation of its Fraud Prevention Plan. Vendor contracts must include specific language to indicate that the contractor will cooperate with Department of Financial Services in any examination of the implementation of the Plan and provide any and all assistance requested by the Criminal Investigations Unit and other law enforcement or prosecutorial agencies in the investigation and prosecution of insurance fraud and related crimes. Insurers should also include the amount of time contractors’ investigators are expected to devote to the insurer, e.g., one full-time investigator or 10 percent of the contractor’s investigative resources.

How does the insurer demonstrate that an SIU is separate from Claims and Underwriting functions?

Each SIU should be established as a separate unit with its own budget line. Investigative personnel should not perform claims or underwriting functions and; claims and underwriting personnel should not perform investigative functions. The SIU should not report to claims or underwriting personnel except at the executive level.

Besides an SIU, what other provisions must be included in Fraud Prevention Plans?

Section 409(c) lists fraud prevention plans requirements including: provisions for in-service training programs for underwriting and claims staff in identifying and evaluating suspected insurance fraud; cooperation with law enforcement; development of a public awareness program; development of a fraud detection and procedures manual, among other requirements of Section 409(c). Regulation 95 contains additional detail and requirements.

Are insurers required to develop a Fraud Detection and Procedures Manual?

Yes. Section 409(c)(6) requires that Fraud Prevention Plans provide for the development of a fraud detection and procedure manual for use by underwriting and claims personnel. Regulation 95 also requires the development of such a manual for investigative personnel.

What details are required to be provided regarding the staffing of an SIU?

The Plan must include the name, title, job description and geographical location of each investigator in the SIU. Insurers must demonstrate that investigators meet the specific education or experience qualifications specified by Section 409 (b)(3) and Regulation 95 86.6(c). Among these qualifications is: five years of insurance claims investigation experience or law enforcement investigation experience; an associate's or bachelor's degree in criminal justice or a related field.

Is there a requirement for an SIU to include a minimum number of investigators?

No. Each company has broad latitude in deciding how much of its resources will be dedicated to fraud prevention. However, companies must justify the adequacy of these resources.

What is meant by the vulnerability of an insurer?

Vulnerability means the exposure to potential loss from fraud. It is an important factor for insurers to consider when preparing a Fraud Prevention Plan. For example, strict underwriting guidelines coupled with thorough investigations of all policy applicants will decrease vulnerability.

Section 409 of the Insurance Law and Regulation 95 require insurers to submit an annual report to the Department. When is the Report due? What information must the Report contain?

The Report is due no later than March 15 of each year. Annual reports should be submitted through the DFS portal via the “Annual SIU Report Application.

Are Fraud Prevention Plans or Fraud Detection and Procedures Manuals subject to New York State Freedom of Information Act?

No. Section 409(e) of the New York Insurance Law states that fraud prevention plans and related information and correspondence are confidential communication and not open for review or subject to a subpoena except by court order or by request from any law enforcement agency or authority.