INSURANCE FRAUD HANDBOOK © 2019 by the Association of Certified Fraud Examiners, Inc. “Association of Certified Fraud Examiners,” “Certified Fraud Examiner,” “CFE,” “ACFE,” “CFE Exam Prep Course,” “Fraud Magazine,” “Report to the Nations,” the ACFE Seal, the ACFE Logo and related trademarks, names, and logos are the property of the Association of Certified Fraud Examiners, Inc., and are registered and/or used in the U.S. and countries around the world. COURSE REVISION DATE: 12/20/19 No portion of this book may be reproduced or transmitted in any form or by any means electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without the written permission of the Association of Certified Fraud Examiners, Inc. The Gregor Building 716 West Avenue Austin, Texas 78701 USA (800) 245-3321 + 1 (512) 478-9000 ACFE.com DISCLAIMERS: Every effort has been made to ensure that the contents of this publication are accurate and free from error. However, it is possible that errors exist, both typographical and in content. Therefore, the information provided herein should be used only as a guide and not as the only source of reference. The author, advisors, and publishers caution that this publication is not meant to provide legal advice. The user should always consult with an attorney regarding the specific rules and regulations for your state or locality. Printed in the United States of America. INSURANCE FRAUD HANDBOOK TABLE OF CONTENTS I. INSURANCE FRAUD OVERVIEW Introduction to Insurance Fraud .......................................................................................................................... 1 Insurance Fraud Schemes ...................................................................................................................................... 2 Red Flags of Insurance Fraud ............................................................................................................................... 8 Summary ................................................................................................................................................................. 11 II. ESTABLISHING AND MEASURING A NEW SPECIAL INVESTIGATION UNIT Introduction ........................................................................................................................................................... 13 Measurement Systems in Place ........................................................................................................................... 15 Who Measures? ..................................................................................................................................................... 15 How Often Are Measurements Taken? ............................................................................................................. 16 Calculating Savings ............................................................................................................................................... 16 Factors in Measuring Performance .................................................................................................................... 18 Additional Rating Factors .................................................................................................................................... 18 Expensing SIU Costs ........................................................................................................................................... 19 Areas of SIU Responsibility ................................................................................................................................ 19 SIU Personnel Selection ....................................................................................................................................... 20 Technology Requirements ................................................................................................................................... 22 Data Mining and Link Analysis ........................................................................................................................... 24 Integrated Business Processes ............................................................................................................................. 25 Anti-Fraud Personnel ........................................................................................................................................... 26 Summary ................................................................................................................................................................. 26 III. THE POLICY: THE CONTRACT Introduction ........................................................................................................................................................... 29 Knowing the Policy and Its Language ............................................................................................................... 31 The Policy as a Contract ...................................................................................................................................... 32 First- and Third-Party Policies ............................................................................................................................ 34 Innocent Coinsured .............................................................................................................................................. 35 Mortgages and Loss Payees ................................................................................................................................. 37 IV. CONDUCTING THE EXAMINATION UNDER OATH Introduction ........................................................................................................................................................... 41 Effective Use of the Examination Under Oath ............................................................................................... 44 Insurance Fraud Handbook i INSURANCE FRAUD HANDBOOK IV. CONDUCTING THE EXAMINATION UNDER OATH (CONT.) The Uses of an Examination Under Oath ........................................................................................................ 46 The Interplay of the Arson and Fraud Defenses in a Fire Claim .................................................................. 51 Summary ................................................................................................................................................................. 54 V. THE INSURANCE INTERVIEW PROCESS The Preliminary Statement of the Insured or Claimant .................................................................................. 57 Statement Methods ............................................................................................................................................... 59 Witness Statements ............................................................................................................................................... 66 VI. INFORMATION GATHERING AND LEGAL ISSUES OF SHARING Immunity Reporting Acts .................................................................................................................................... 71 Public Records Laws ............................................................................................................................................ 76 Reciprocal Information Exchange ..................................................................................................................... 78 Disclosure .............................................................................................................................................................. 78 Ethics and Insurance Fraud ................................................................................................................................ 82 Information Gathering ......................................................................................................................................... 82 Domain Name Searching ..................................................................................................................................... 86 Historical Website Information .......................................................................................................................... 86 Secretary of State Records ................................................................................................................................... 86 City and County Business Licensing .................................................................................................................. 87 Newspaper Searches ............................................................................................................................................. 87 Professional Licensing .......................................................................................................................................... 87 UCC Filings ........................................................................................................................................................... 87 Treat All Information Obtained as a Lead ........................................................................................................ 87 Summary ................................................................................................................................................................. 88 VII. CONDUCTING SURVEILLANCE Introduction ..........................................................................................................................................................