    [Senate Hearing 115-431]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 115-431

        INSURANCE FRAUD IN AMERICA: CURRENT ISSUES FACING INDUSTRY AND
                                   CONSUMERS

    =======================================================================

                                    HEARING

                                   before the

                      SUBCOMMITTEE ON CONSUMER PROTECTION,
                           PRODUCT SAFETY, INSURANCE,
                               AND DATA SECURITY

                                     of the

                             COMMITTEE ON COMMERCE,
                          SCIENCE, AND TRANSPORTATION
                              UNITED STATES SENATE

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 AUGUST 3, 2017

                                   __________

        Printed for the use of the Committee on Commerce, Science, and Transportation

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                    Available online: http://www.govinfo.gov

                             _______________

                       U.S. GOVERNMENT PUBLISHING OFFICE

    34-303 PDF                WASHINGTON : 2019

           SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                       JOHN THUNE, South Dakota, Chairman
    ROGER F. WICKER, Mississippi         BILL NELSON, Florida, Ranking
    ROY BLUNT, Missouri                  MARIA CANTWELL, Washington
    TED CRUZ, Texas                      AMY KLOBUCHAR, Minnesota
    DEB FISCHER, Nebraska                RICHARD BLUMENTHAL, Connecticut
    JERRY MORAN, Kansas                  BRIAN SCHATZ, Hawaii
    DAN SULLIVAN, Alaska                 EDWARD MARKEY, Massachusetts
    DEAN HELLER, Nevada                  CORY BOOKER, New Jersey
    JAMES INHOFE, Oklahoma               TOM UDALL, New Mexico
    MIKE LEE, Utah                       GARY PETERS, Michigan
    RON JOHNSON, Wisconsin               TAMMY BALDWIN, Wisconsin
    SHELLEY MOORE CAPITO, West Virginia  TAMMY DUCKWORTH, Illinois
    CORY GARDNER, Colorado               MAGGIE HASSAN, New Hampshire
    TODD YOUNG, Indiana                  CATHERINE CORTEZ MASTO, Nevada
                           Nick Rossi, Staff Director
                     Adrian Arnakis, Deputy Staff Director
                        Jason Van Beek, General Counsel
                     Kim Lipsky, Democratic Staff Director
                  Chris Day, Democratic Deputy Staff Director
                          Renae Black, Senior Counsel
                                     ------

      SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, INSURANCE, AND
                                 DATA SECURITY

    JERRY MORAN, Kansas, Chairman        RICHARD BLUMENTHAL, Connecticut,
    ROY BLUNT, Missouri                      Ranking
    TED CRUZ, Texas                      AMY KLOBUCHAR, Minnesota
    DEB FISCHER, Nebraska                EDWARD MARKEY, Massachusetts
    DEAN HELLER, Nevada                  CORY BOOKER, New Jersey
    JAMES INHOFE, Oklahoma               TOM UDALL, New Mexico
    MIKE LEE, Utah                       TAMMY DUCKWORTH, Illinois
    SHELLEY MOORE CAPITO, West Virginia  MAGGIE HASSAN, New Hampshire
    TODD YOUNG, Indiana                  CATHERINE CORTEZ MASTO, Nevada

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on August 3, 2017...................................     1
    Statement of Senator Moran.......................................     1
        Prepared statement...........................................     2
        Coalition Against Insurance Fraud 2016 study entitled ``The
          State of Insurance Fraud Technology''......................    41
        Coalition Against Insurance Fraud 2016 Annual Report.........    56
    Statement of Senator Blumenthal..................................     3
    Statement of Senator Nelson......................................     3
        Prepared statement...........................................     4
    Statement of Senator Capito......................................    38

                                   Witnesses

    Hon. John D. Doak, Insurance Commissioner, State of Oklahoma, On
      Behalf of the National Association of Insurance Commissioners..     6
        Prepared statement...........................................     8
    Dennis Jay, Executive Director, Coalition Against Insurance Fraud    11
        Prepared statement...........................................    13
    Sean Kevelighan, Chief Executive Officer, Insurance Information
      Institute......................................................    17
        Prepared statement...........................................    19
    Timothy J. Lynch, Director, Government Affairs, National
      Insurance Crime Bureau.........................................    20
        Prepared statement...........................................    22
    Rachel Weintraub, Legislative Director and General Counsel,
      Consumer Federation of America.................................    23
        Prepared statement...........................................    24

        INSURANCE FRAUD IN AMERICA: CURRENT ISSUES FACING INDUSTRY AND
                                   CONSUMERS

                                  ----------

                            THURSDAY, AUGUST 3, 2017

                                   U.S. Senate,
          Subcommittee on Consumer Protection, Product
                   Safety, Insurance, and Data Security
            Committee on Commerce, Science, and Transportation,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 9:49 a.m. in
    room SR-253, Russell Senate Office Building, Hon. Jerry Moran,
    Chairman of the Subcommittee, presiding.
        Present: Senators Moran [presiding], Blumenthal, Nelson,
    Fischer, Klobuchar, Capito, Hassan, Cortez Masto, and Young.

                OPENING STATEMENT OF HON. JERRY MORAN,
                        U.S. SENATOR FROM KANSAS

        Senator Moran. Good morning, everyone. I call the hearing
    of this Subcommittee on Consumer Protection, Product Safety,
    Insurance, and Data Security to order. As our title suggests,
    this Subcommittee exercises wide jurisdiction over a diverse
    range of topics. And this will be our first hearing this
    Congress to examine matters related to insurance, specifically
    today, that of insurance fraud.
        Thank you for our expert witnesses who have joined us.
        Insurance fraud is a major concern not only for insurers--
    who bear the cost of fraudulent claim payouts--but also
    consumers, who see those costs passed on to them in the form of
    higher premiums. This hearing will examine the scope of
    insurance fraud at large in the United States and address
    nationwide fraud trends across a variety of insurance markets,
    including property and casualty, and life insurance. In
    addition, we'll discuss the tools available to states,
    insurers, and consumers to protect themselves against these
    crimes.
        The insurance industry has an enormous presence in the
    United States. There are nearly 3,000 property and casualty
    insurance companies across the country, another 850 life and
    health insurance companies. Together, they generated over $1
    trillion in premiums in 2015 alone.
        The FBI reports that the sheer size of this industry makes
    it an attractive target for criminals by providing ample
    opportunities and bigger incentives for committing illegal
    activities, estimating the total cost of non-health insurance
    fraud in the United States at more than $40 billion annually.
    That level of insurance fraud, in turn, costs the average
    American family upwards of $700 per year in the form of
    increased premiums.
        With examples of insurance consumer concerns as recent news
    reports indicate, Wells Fargo charged its automobile loan
    customers for collision insurance they did not need, this
    hearing is timely. As for oversight, my staff is already in
    communication with Wells Fargo regarding these concerns, and we
    plan to follow up accordingly to gather additional information
    on the circumstances and what should be done.
        While insurance is largely regulated at the state level,
    insurance fraud schemes can and do lead to Federal criminal
    charges, and I believe the Federal Government must do what it
    can to protect consumers from bad actors who seek to defraud
    them.
        As was a common theme among popular consumer scams
    discussed in this Subcommittee earlier this year, insurance
    fraud schemes are constantly evolving and growing in complexity
    over time. Technology must and will play a crucial role in
    catching sophisticated fraud activity. And I look forward to
    learning more from our distinguished witness panel about the
    use and efficacy of emerging technologies, data collection, and
    information-sharing practices to better detect and prevent
    insurance fraud.
        Once again, thank you for being here. Thank you for
    generously delaying your August travel plans to be part of this
    important hearing.
        [The prepared statement of Senator Moran follows:]

        Prepared Statement of Hon. Jerry Moran, U.S. Senator from Kansas
        Good morning, everyone. I call to order this hearing of the Senate
    Subcommittee on Consumer Protection, Product Safety, Insurance and Data
    Security.
        As the title suggests, this Subcommittee exercises wide
    jurisdiction over a diverse range of topics. This will be our first
    hearing this Congress to examine matters pertaining to insurance--
    specifically, that of insurance fraud. Thank you to our expert
    witnesses who came here to join us today.
        Insurance fraud is a major concern not only for insurers--who bear
    the costs of fraudulent claim payouts--but also consumers, who see
    these costs passed on to them in the form of higher premiums. This
    hearing will examine the scope of insurance fraud at-large in the
    United States and address nationwide fraud trends across a variety of
    insurance markets, including property and casualty, and life insurance.
    In addition, we'll discuss the tools available to states, insurers, and
    consumers to protect themselves against these crimes.
        The insurance industry has an enormous presence in the United
    States. There are nearly 3,000 property and casualty insurance
    companies across the country, and another 850 life and health insurance
    companies. Together, they generated over 1 trillion dollars in premiums
    in the year 2015 alone.
        The FBI reports that the sheer size of this industry makes it an
    attractive target for fraudsters by providing ample opportunities and
    bigger incentives for committing illegal activities, estimating the
    total cost of non-health insurance fraud in the U.S. to be more than 40
    billion dollars annually. That level of insurance fraud, in turn, costs
    the average American family upwards of 700 dollars per year in the form
    of increased premiums.
        With examples of insurance consumer concerns like recent news
    reports indicating Wells Fargo charged its automobile loan customers
    for collision insurance they did not need, this hearing is
    exceptionally timely. As for oversight, my staff is already in
    communication with Wells Fargo regarding these concerns, and I plan to
    follow up accordingly to gather additional information on the
    circumstances and what is being done to address these issues.
        While insurance is largely regulated at the state level, insurance
    fraud schemes can and do lead to Federal criminal charges, and I
    believe the Federal government must do what it can to protect consumers
    from bad actors who seek to defraud them.
        Raising consumer awareness is a significant component of helping
    consumers protect themselves, and to that end this hearing will
    highlight a number of current insurance fraud trends--including auto
    insurance fraud, workers' compensation fraud, fee churning schemes, and
    contractor fraud in the wake of natural disasters.
        As was a common theme among popular consumer ``scams'' discussed in
    this Subcommittee earlier this year, insurance fraud schemes are
    constantly evolving and growing in complexity over time. Technology
    must and will play a crucial role in catching sophisticated fraud
    activity, and I look forward to learning more from our distinguished
    witness panel about the use and efficacy of emerging technologies, data
    collection, and information sharing practices to better detect and
    prevent insurance fraud.
        Once again, thank you all for being here and generously delaying
    your August recess travel plans to be a part of this important hearing.
    With that I will now turn to the Ranking Member, Senator Blumenthal,
    for his opening remarks.

        Senator Moran. And I now turn to my Ranking Member, Senator
    Blumenthal, for his opening remarks.

                 STATEMENT OF HON. RICHARD BLUMENTHAL,
                     U.S. SENATOR FROM CONNECTICUT

        Senator Blumenthal. Thank you, Mr. Chairman, and thank you
    so much for having this hearing.
        Before I give some very, very brief opening remarks, I want
    to yield to the Ranking Member, my friend Senator Nelson, for
    some remarks because he has to leave to go to a classified
    intelligence briefing this morning.

                    STATEMENT OF HON. BILL NELSON,
                       U.S. SENATOR FROM FLORIDA

        Senator Nelson. Thank you for your courtesies, Mr. Chairman
    and Senator Blumenthal.
        Years ago, I had the hardest job, Commissioner, that I've
    ever had in public service, that of the elected insurance
    commissioner of Florida. Not the least of one of the challenges
    was the fact that we inherited a mess in the aftermath of a
    monster hurricane.
        In the course of all of those years of trying to be a
    proactive insurance commissioner, we would run into fraud quite
    a bit. And when I say ``quite a bit,'' I mean a small
    percentage, just minimal percentage, of all the insurance that
    is bought and sold, but when you would find it, it would be
    despicable.
        For example, we found insurance companies selling low-value
    burial policies that had done it for decades in the African
    American community for which they charged the African American
    community a higher rate than the same policies sold in the
    white community. Once we discovered that and busted it open, it
    quickly stopped. Some of those insurance companies have long
    since been sold to other insurance companies, and the practice
    involved some of the national insurance companies.
        Individual states, not the Federal Government, continue to
    be the primary regulators of insurance. And, that fact is not
    lost on us, as we are now trying to fix the existing law on
    health insurance. As we're going forward, the insurance
    commissioners are going to have to be brought into the
    discussion to determine what will work in their states. As
    recently as last night, there were a group of 14 of us,
    interestingly, divided evenly between Rs and Ds, talking about
    the fixes that could be done primarily through Senator
    Alexander's Committee, once we get back here in September. And
    so it's important that we consider your ideas, Mr.
    Commissioner.
        Insurance has been an issue in front of us so much because
    of the dominance of the debate of health care. We discussed,
    for example, one of the experiences that we had in Florida when
    I inherited a paralyzed marketplace in the state because
    insurance companies had fled Florida due to monster Hurricane
    Andrew.
        By the way, there happened to be a lot of fraud committed
    in the course of all of that debacle. And one of the ways of
    getting insurance companies back into the state was to create a
    reinsurance fund against hurricane catastrophe. That fund
    exists today with huge reserves, the Florida Hurricane
    Catastrophe Fund.
        As we look at the question of fraud, I am very, very
    appreciative of you, Mr. Chairman and Mr. Ranking Member, that
    you all would hold this hearing. All fraud does is it hurt
    insurance companies, hurt the people, and hurt the providers,
    and hurt the agents. It hurts everybody, and we ought to be
    ferreting it out.
        Thank you for bringing forth this hearing. Thank you.
        [The prepared statement of Senator Nelson follows:]

       Prepared Statement of Hon. Bill Nelson, U.S. Senator from Florida
        Thank you for calling this hearing Mr. Chairman. As Florida's
    former insurance commissioner, I've seen firsthand how fraud impacts
    consumers and insurers.
        Insurance fraud takes on many forms from sales abuses that target
    the elderly to ``cash for crash'' schemes where accidents are
    deliberately staged or caused for financial gain.
        One of the most despicable cases I can recall was that of an
    insurer who took advantage of black policyholders for decades by
    overcharging them for burial policies.
        Fortunately, we were able to put a stop to that practice.
        While individual states, and not the Federal government, continue
    to be the primary regulators of insurance, I welcome hearing from our
    distinguished panel today regarding the trends they're seeing on the
    fraud front and whether there is a role the Federal government can play
    to help the states.
        Meantime, since we are talking about insurance, I would also like
    to take this opportunity to share my thoughts on last week's health
    care vote and its aftermath.
        As I have said throughout this process, we need to come together
    and seek bipartisan solutions to fix the Affordable Care Act and not
    undo all of the good things its done.
        That is why I've been working with Senator Collins to find
    solutions that will provide immediate relief to families back home.
        In fact, over the last week the two of us have joined a bipartisan
    group of other senators who share our desire to find a path forward.
        We've discussed creating a permanent reinsurance fund to lower the
    financial risk of insurance companies and reduce premiums for American
    families.
        I've seen this work before during my days as insurance commissioner
    following Hurricane Andrew, the second costliest hurricane in our
    Nation's history.
        In Andrew's aftermath, Florida established a reinsurance fund to
    insure the insurance companies for their catastrophic losses.
        The same thing can and should be done for health care.
        I cosponsored a bill to create a permanent reinsurance program that
    would provide Federal funding to cover 80 percent of insurance claims
    falling between $50,000 and $500,000 over the next two years.
        After that, Federal funding would cover 80 percent of insurance
    claims between $100,000 and $500,000.
        One Florida insurer estimated the bill would reduce premiums for
    Floridians by up to 13 percent.
        We can also work in a bipartisan manner to fund payments that lower
    Americans' out-of-pockets costs.
        These are the same payments the administration is threatening to
    end that lower costs for millions of Americans.
        If these payments are stopped, there will be real consequences.
        Working families will face higher premiums and fewer insurance
    options. In Florida, premiums will increase by 25 percent if these
    payments are cancelled.
        Higher costs mean fewer folks will be able to afford coverage.
        Our colleagues on the HELP Committee, Chairman Alexander and
    Ranking Member Patty Murray, have the right idea.
        They have committed to holding a series of hearings with the goal
    of stabilizing the ACA's insurance market.
        That's a good start and one I hope we can all get behind because,
    in reality, it's going to take more than just a few of us to improve
    health care for families back home.
        That said Mr. Chairman, I would welcome working with you or any of
    my colleagues here to find that path forward.

        Senator Moran. Senator Nelson, thank you for joining us. We
    appreciate you being here and understand there are other
    commitments.
        And I again recognize the Senator from Connecticut, the
    Ranking Member.
        Senator Blumenthal. Thank you.
        Senator Nelson is absolutely right. Insurance fraud hurts
    everyone, including the business people, who are charged higher
    premiums, as well as consumers, because insurance fraud is
    costly to those companies. And, of course, it hurts individual
    consumers who are misled or deceived when they believe they are
    owed money for legitimate claims and they find that somehow
    there is fine print in the policy, sometimes inserted or
    interpreted in ways they never thought possible. And that's why
    we're here today.
        I hope that you will not take personally the anger and
    frustration that I and others may express today. Your
    willingness to be here I think is very important, and I want to
    thank each of you for being here to enlighten us and respond to
    our questions.
        But what we've seen is, for example, in Connecticut,
    homeowners affected by a substance called pyrrhotite. Insurance
    companies have surreptitiously modified their homeowner
    policies without properly telling them to exclude damage to a
    home's foundation once the insurance companies learn that those
    foundations had a potential and naturally occurring flaw as a
    result of that substance, pyrrhotite. The insurance companies
    in effect changed the policies without properly notifying their
    consumers. And I'm going to be asking questions about that
    occurrence.
        Insurance companies have stalled and delayed payment of
    claims citing obscure clauses in policies, forcing
    policyholders into protracted and expensive legal battles just
    to receive legitimate and rightful claims.
        Insurance companies have used Social Security data to cut
    off annuity or retirement payments upon a policyholder's death,
    but they haven't stopped collecting premium payments in the
    meantime. And just last week, we learned about Wells Fargo
    forcing unwanted insurance on auto loan borrowers without their
    knowledge since at least 2012 through a process known as,
    ``force-placed insurance.''
        I spent a couple of decades as Connecticut's Attorney
    General, and I saw all kinds of fraudulent schemes and the
    stories and testimonies about misleading and sneaky insurance
    companies from Americans across my state in Connecticut, ought
    to be of tremendous concern because at the end of the day, what
    insurance companies have that's most important to them is their
    credibility and their reputation for honesty. And these kinds
    of instances, even if they are a handful, cost literally
    millions, tens of millions, of dollars to ordinary consumers,
    and they give the vast majority of insurance companies and
    brokers and agents a bad name.
        And I want to hear today from industry and consumer
    advocates about how we can hold insurance companies accountable
    for any misleading or unfair action. I hope that today's
    hearing is the beginning, not the end, of this inquiry.
        And again I thank the Chairman for having us all together
    today. And I will be--I've read your testimony. I'm going to be
    leaving for your testimony because I have a Judiciary Committee
    meeting, but I'll be back for the questions.
        I apologize for my absence, Mr. Chairman.
        Senator Moran. Senator Blumenthal, thank you for your
    cooperation. We look forward to your return. I'll introduce the
    witnesses, and we'll take their testimony.
        Our panel consists of the following: The Honorable John
    Doak, who is the Oklahoma Insurance Commissioner, and he is
    here testifying on behalf of the National Association of
    Insurance Commissioners; Mr. Dennis Jay, Executive Director,
    Coalition Against Insurance Fraud; Mr. Sean Kevelighan, Chief
    Executive Officer, Insurance Information Institute; Mr. Tim
    Lynch, Director of Government Affairs, National Insurance Crime
    Bureau; and Ms. Rachel Weintraub, General Counsel, Consumer
    Federation of America. Thank you all for being here today.
        We'll begin with you, Commissioner Doak. Senator Inhofe
    intended to introduce you today. He is unable to be with us
    this morning. He had prepared some remarks of introduction, and
    I will make those a part of the record. We now turn to you for
    your testimony.

               STATEMENT OF HON. JOHN D. DOAK, INSURANCE

           COMMISSIONER, STATE OF OKLAHOMA, ON BEHALF OF THE

            NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS

        Mr. Doak. Thank you very much.
        Good morning, Chairman Moran, Ranking Member Blumenthal,
    and members of the Subcommittee. I appreciate the opportunity
    to testify to provide state insurance regulators' perspective
    on insurance fraud trends and our efforts to reduce and deter
    this activity.
        Insurance is an attractive target for fraud because
    detection can be challenging. Unlike bank or credit card
    accounts, consumers do not frequently interact with insurance
    policies. Premiums are typically paid annually, and claims are
    filed only upon injury, death, or damage to one's property.
    With consumers and business spending over $2 trillion on
    insurance per year with infrequent interactions, tempting
    windows of opportunity are created for criminals. Some estimate
    insurance fraud costs between $80 billion to $100 billion
    annually across all lines of insurance. Ten percent or more of
    the property/casualty insurance claims may be fraudulent.
        State insurance regulators are tracking several current
    trends in insurance fraud. For example, state insurance
    departments have seen contractor and adjustor fraud occurring
    after natural disasters. In these instances, contractors or
    insurance adjusters require advanced payment from consumers for
    services or advance assignment of insurance policy benefits and
    then disappear without ever doing the work. In cases where
    repairs were made, the contractor does shoddy work using
    substandard materials. In Oklahoma, my department's Anti-fraud
    Unit deploys after disasters to assess damage and educate
    consumers about fraud prevention. Here's a photo of myself and
    Governor Fallin and state legislators with our anti-fraud unit
    after a recent tornado in Elk City, Oklahoma.
        [Photo shown of Mr. Doak with Governor Fallin]
        We've also seen a scam where strangers offer to replace
    vehicle windshields, claiming it's unsafe and the insurance
    will cover the cost. Even though the windshield is undamaged,
    the fraudster replaces it, files a claim on the individual's
    policy, and not only is the work unnecessary and the claim
    fraudulent, but the replacement windshield may not be installed
    correctly, leading to serious safety risk.
        Last, state insurance regulators are seeing an increase in
    fraudulent activity in the health care sector, such as
    prescription drug and medical equipment scams, including
    unjustified claims and identity theft. These trends are deeply
    troubling, which is why fighting insurance fraud is one of the
    highest priorities of state insurance regulators. We initiate
    inquiries on suspected fraud acts, and we have the authority to
    conduct exams to investigate. Many of the state bureaus possess
    law enforcement powers and may have civil authority to impose
    fines.
        State insurance regulators work with insurers and their
    special investigation units to address suspected fraud and
    ensure that they are complying with state fraud prevention
    statutes. As part of our anti-fraud efforts, state insurance
    regulators formed an Antifraud Task Force in the 1980s to
    coordinate this work. I serve as the current Chair. In this
    task force, the states review fraudulent insurance activities,
    discuss national trends, address concerns related to insurance
    agent fraud and unauthorized insurance sales. We also engage
    with consumers and insurers to address anti-fraud issues.
        The NAIC created the Online Fraud Reporting System through
    which consumers and insurers can report suspected fraud to
    insurance departments. This provides consumers and insurers one
    central portal to report suspected fraud. A report made against
    an insurer or intermediary is delivered to all states in which
    they do business.
        In addition, the Task Force is evaluating sources of anti-
    fraud data and looking at ways to improve the exchange of
    information among regulators, law enforcement, insurers, and
    anti-fraud organizations. The Task Force is developing uniform
    fraud referral requirements that would require companies to
    submit data relating to suspected fraud to insurance
    departments.
        Finally, we engage in efforts to educate consumers
    regarding insurance fraud. The NAIC has consumer resources,
    including its ``Fight Fake Insurance'' program, which
    encourages, ``Stop, Call, and Confirm,'' the insurance agent
    and the company to make sure the insurance agent and company
    are properly licensed before buying coverage.
        In conclusion, as insurance fraud continues to develop, the
    state regulators will remain vigilant. We continue to adapt
    strategies that prevent and detect fraud in order to protect
    consumers and maintain insurers' financial health.
        Thank you, sir, for the opportunity to be here. And we'd be
    pleased to take your questions at the appropriate time.
        [The prepared statement of Mr. Doak follows:]

     Prepared Statement of John D. Doak, Insurance Commissioner, State of
         Oklahoma, On Behalf of the National Association of Insurance
                                 Commissioners
    Introduction
        Chairman Moran, Ranking Member Blumenthal, and members of the
    Subcommittee, thank you for the invitation to testify today. My name is
    John Doak. I am the elected Insurance Commissioner for the state of
    Oklahoma and I present today's testimony on behalf of the National
    Association of Insurance Commissioners (NAIC).\1\ I serve as the Chair
    of the NAIC's Antifraud Task Force as well as its Property and Casualty
    Committee. On behalf of my fellow state insurance regulators, I
    appreciate the opportunity to provide an overview of our efforts to
    detect, investigate, and prevent insurance fraud.
    ---------------------------------------------------------------------------
        \1\ The NAIC is the United States standard-setting and regulatory
    support organization created and governed by the chief insurance
    regulators from the 50 states, the District of Columbia, and five U.S.
    territories. Through the NAIC, we establish standards and best
    practices, conduct peer review, and coordinate our regulatory
    oversight. NAIC members, together with the central resources of the
    NAIC, form the national system of state -based insurance regulation in
    the U.S.
    ---------------------------------------------------------------------------
        Insurance is an essential part of the financial services sector, a
    fundamental pillar of our economy and vital for the well-being of our
    citizens. It is a means of protection against damage to property or
    loss of life, and is at the core of the risk management strategies of
    consumers and businesses. Insurance can be an attractive target for
    fraud because detection can be a challenge. Unlike other financial
    products, particularly bank or credit card accounts, which consumers
    access weekly or even daily, consumers do not interact with their
    insurance policies with the same frequency--premiums are generally paid
    monthly or annually and claims are filed only upon the occurrence of an
    insured event such as injury, death, or damage to one's property.
    Consumers and businesses spend more than $2 trillion on insurance per
    year, and the relatively infrequent interactions between consumers and
    many of their policies creates tempting windows of opportunity for
    criminals. The prevalence of insurance fraud costs an estimated $80-100
    billion dollars annually across all lines of insurance and industry
    estimates that 10 percent or more of property-casualty insurance claims
    alone may be fraudulent. Insurance fraud inflicts significant financial
    and personal damage on consumers and imposes additional costs on
    insurance companies that can be passed along to policyholders in the
    form of higher premiums.
        Reducing and deterring fraud is a priority for state insurance
    regulators, whose antifraud activities aim to protect consumers and
    maintain insurers' financial health. The state insurance regulatory
    response to insurance fraud is multifaceted, involving consumer
    education and information, reporting and prevention, investigation, and
    corrective action.
    State Insurance Regulators' Efforts to Fight Fraud
        Fighting fraud is an important aspect of state insurance
    regulation. States combat insurance fraud through special fraud bureaus
    that are charged with identifying fraudulent acts, investigating cases,
    and preventing insurance scams. Thirty-one states and the District of
    Columbia have fraud bureaus housed in their insurance department \2\
    while eleven states have bureaus housed in their attorney general's
    office, law enforcement agencies, or another regulatory entity. Other
    states address insurance fraud through their market conduct, consumer
    affairs, or legal divisions. Many state fraud bureaus possess law
    enforcement powers and may also have civil authority to impose fines.
    State fraud bureaus initiate independent inquiries and conduct
    investigations on suspected fraudulent insurance acts. They also review
    reports or complaints of alleged fraudulent insurance activities from
    federal, state and local law enforcement and regulatory agencies,
    persons engaged in the business of insurance, and the public to
    determine whether the reports require further investigation and to
    conduct these investigations. State fraud bureaus regularly conduct
    independent examinations of alleged fraudulent insurance acts and
    undertake studies to determine the extent of these acts. States can
    also access the NAIC's Regulatory Information Retrieval System (RIRS),
    which contains all final adjudicated actions taken and submitted by
    state insurance departments. This information typically includes
    administrative complaints, cease and desist orders, settlement
    agreements and consent orders, and license suspensions or revocations.
    Since 2007, there have been more than 96,000 adjudicated actions
    submitted by the states into RIRS. States can receive alerts through
    this system.
    ---------------------------------------------------------------------------
        \2\ California, Connecticut, Louisiana, Maryland, and Oklahoma also
    have fraud bureaus in their state attorney general's office. Louisiana
    also has a fraud bureau in their state law enforcement agency.
    ---------------------------------------------------------------------------
        State insurance regulators work with insurers and their special
    investigation units (SIUs) to address suspected fraud. The SIUs are
    divisions within insurers to investigate insurance fraud and usually
    consist of former law enforcement or claims employees turned
    investigators. Insurers' SIUs must comply with the NAIC Insurance Fraud
    Prevention Model Act (#680) or similar state fraud prevention statutes.
    This model act creates a framework to help state insurance regulators
    identify, investigate, and prevent insurance fraud and provides
    guidance on how to assist and receive assistance from other state,
    local and Federal law enforcement and regulatory agencies in enforcing
    laws prohibiting fraudulent insurance acts. Further, the NAIC Antifraud
    Plan Guideline (#1690) establishes standards for SIUs regarding the
    preparation of an antifraud plan to meet state insurance department
    requirements. By conducting an audit or inspection, or by reviewing an
    insurer's antifraud plan in conjunction with a market conduct
    examination, state insurance regulators help ensure an insurance
    company is following its submitted antifraud plan.
    NAIC Antifraud Initiatives
        As part of state insurance regulators' efforts to help fight the
    growing problem of insurance fraud, the NAIC formed an Antifraud Task
    Force in the 1980s. Through this task force, states coordinate efforts
    to review issues related to fraudulent insurance activities and
    schemes; address national concerns related to insurance agent fraud and
    unauthorized insurance sales; educate consumers about insurance fraud;
    maintain and improves electronic databases regarding fraudulent
    insurance activities; and disseminate research and analysis of
    insurance fraud trends to the insurance regulatory community. The Task
    Force also serves as a liaison between insurance regulators, law
    enforcement and other antifraud organizations, and coordinates with
    state and Federal securities regulators.
        Data collection and information-sharing are critical to our
    antifraud efforts. Through the NAIC, state insurance regulators created
    the Online Fraud Reporting System (OFRS), through which consumers and
    insurers can electronically report suspected fraud to the appropriate
    insurance department. By using this system, consumers and insurers have
    one central, online portal to report suspected fraud to one or more
    states. A report made in OFRS against an insurer or intermediary is
    delivered to all states in which the insurer or intermediary does
    business. Since its inception in 2005, there have been more than
    685,000 reports of suspected fraud received through OFRS.
        In addition, the Task Force is undertaking an initiative to
    evaluate sources of antifraud data and propose methods for improving
    the exchange of information among insurance regulators, law enforcement
    officials, insurers SIUs, and other antifraud organizations. The Task
    Force is developing uniform insurance fraud referral requirements for
    insurers to submit suspected insurance fraud data to state insurance
    departments. We are collecting information from the states in order to
    develop these requirements. Task Force members also continue to develop
    new and update existing seminars, trainings and webinars for regulators
    regarding insurance fraud and relevant trends, and efforts to combat
    fraud.
        The NAIC and state insurance regulators also play an important role
    in educating consumers. The NAIC has a robust communications effort in
    place through its consumer alerts and Insure U public education program
    to assist consumers with navigating the complexities of insurance. The
    NAIC website provides tools to help consumers avoid being scammed. The
    NAIC's ``Fight Fake Insurance'' program was developed to protect
    consumers from insurance fraud by encouraging them to ``Stop, Call,
    Confirm'' that the individual insurance agent and company are properly
    licensed by their state insurance department before buying coverage. In
    my home state of Oklahoma, my department leads a series of Senior Fraud
    Conferences throughout the year focused on educating and protecting
    seniors regarding Medicare fraud and other types of financial fraud. In
    2017, we held seven conferences with approximately 500 attendees
    statewide.
    Coordination with Federal Government and International Partners
        In addition to our work with insurance consumers within our own
    states, state insurance regulators collaborate with our Federal and
    international colleagues to address insurance antifraud issues. State
    insurance regulators work with the U.S. Department of Treasury and
    other financial regulators on Anti-Money Laundering (AML) initiatives
    as well as initiatives to combat the financing of terrorism (CFT),
    which can involve permanent life insurance, annuities, and other
    products with cash value or investment features. While the Treasury
    Department's Financial Crimes Enforcement Network (FinCen) has primary
    responsibility in this arena, state regulators coordinate with FinCen
    and monitor insurer activities to make sure they are not engaging in
    these activities and are not susceptible to those acts. To cooperate
    and facilitate the sharing of information, state insurance departments
    and FinCen have established Memorandums of Understanding and insurance
    regulators notify appropriate Federal regulators if an insurer is not
    in compliance with AML/CFT requirements.
        With regard to health care, the NAIC and state insurance regulators
    participate in the Centers for Medicare and Medicaid Services' (CMS)
    Healthcare Fraud Prevention Partnership (HFPP), a voluntary public-
    private partnership between the Federal government, state agencies, law
    enforcement, private health insurance plans, and healthcare anti-fraud
    associations. The HFPP aims to foster a proactive approach to detect
    and prevent healthcare fraud through data and information sharing.
        On the international front, the NAIC actively participates in the
    International Association of Insurance Supervisors' (IAIS) Financial
    Crime Task Force to addresses supervisory practices and issues
    surrounding fraud, anti-money laundering/combatting the financing of
    terrorism, and cyber risks.
    Current Insurance Fraud Trends
        Through our interactions with our state and Federal regulatory and
    law enforcement counterparts, we are seeing some disturbing insurance
    fraud trends, including:

       Contractor/adjuster fraud following natural disasters: State
            insurance departments have seen a number of instances of
            contractor and adjuster fraud recently that have occurred
            immediately after floods, tornados, and other natural
            disasters. Contractors or insurance adjusters have required
            advance payments from consumers for services or advance
            assignment of insurance policy benefits. In these cases, the
            contractors sometimes disappear without ever doing the work. In
            other cases where repairs are made, the contractor engaging in
            this conduct does substandard work using substandard materials.
            In Oklahoma, my department's antifraud unit deploys to disaster
            areas to assess damage and to educate consumers about potential
            fraud and how to avoid it. They will place yard signs in
            affected areas with our consumer hotline so consumers know how
            to get help with insurance issues and go door to door to speak
            to impacted individuals.

       Medical equipment scams on seniors and identity theft: In
            this scam, seniors receive unsolicited calls from scammers who
            insist that the seniors have an urgent need for medical
            equipment and claim Medicare or Medicaid will pay for the
            equipment at no cost to them. The personal information provided
            by the victim is then used to file unjustified claims and for
            other fraud schemes, such as identity theft.

       Opioid abuse/insurance scam: As a result of the growing
            opioid epidemic, state insurance regulators are seeing an
            increase in fraudulent prescription scams to capitalize on this
            surge in addiction. Some corrupt medical professionals are
            unlawfully and overly prescribing opioids, while billing the
            costs to insurance companies. ``Pill mill'' doctors that overly
            prescribe pills without medical justification run clinics in
            which they give patients opioid prescriptions, typically for
            cash, with few questions asked. This scheme allows patients to
            easily obtain opioids in order to sell or misuse them.

       Automotive windshield replacement scams: State insurance
            departments are seeing a rise in a scam whereby a stranger at a
            car wash, a parking lot attendant, or valet parking service
            offers to repair or replace a vehicle owner's windshield. The
            fraudster claims the windshield is unsafe and says that
            insurance will take care of the entire cost. Even though the
            windshield is perfectly fine, the fraudster replaces the
            windshield and files a claim on the individual's policy. Not
            only is the work unnecessary and the claim fraudulent, the
            replacement windshield may itself be defective, may not be a
            correct fit or may not be installed correctly, which can then
            lead to serious safety risks.

       Life insurance fraud: State insurance departments are also
            seeing a rise in the tragic case of parents or guardians taking
            out a life insurance policy on their child and then murdering
            them for the payout. State insurance departments are currently
            working diligently on ways to tighten insurers' underwriting
            procedures and assist local law enforcement by closely
            monitoring and possibly preventing the sale and issuance of
            such policies.

        These examples are a few of the recent trends that we have
    observed, but other fraudulent scams have been around for some time,
    such as staged auto accidents with the resulting fraudulent automotive
    and medical claims, faked workers compensation claims, and arson by
    homeowners.
    Conclusion
        As insurance fraud continues to evolve, state insurance regulators
    remain vigilant in our efforts to combat fraud and work with relevant
    stakeholders to address critical concerns. Our fight against insurance
    fraud never stops and state insurance regulators continue to adapt our
    strategies to prevent, detect, and investigate such schemes to protect
    consumers and support insurers' financial health. We appreciate the
    subcommittee's focus on this important issue and the opportunity to be
    here on behalf of the NAIC, and I look forward to your questions.

        Senator Moran. Thank you very much for your testimony.
        Now, Mr. Jay.

    STATEMENT OF DENNIS JAY, EXECUTIVE DIRECTOR, COALITION AGAINST
                            INSURANCE FRAUD

        Mr. Jay. Chairman Moran, members of the Committee, thank
    you for holding this hearing on an important issue that
    virtually affects every consumer and business in America. My
    name is Dennis Jay, and I am Executive Director of the
    Coalition Against Insurance Fraud. We were founded 24 years ago
    as a national broad-based alliance of the major stakeholders in
    the fight against fraud, and that includes consumers,
    government agencies, and insurance companies. And, in fact, the
    four organizations represented at the table today all had a
    hand in founding our organization, particularly so with
    Consumer Federation of America.
        Our mission is to unite the forces in combating insurance
    fraud, while we also are involved in legislative advocacy on
    the state level, empowering consumers to help fight fraud, as
    well as conducting meaningful research.
        Mr. Chairman, as you said in your opening remarks, overall,
    insurance fraud in property/casualty specifically, continues to
    be a drain on consumers and businesses in this country to the
    tune of tens of billions of dollars each year. And it's
    committed by organized rings, by professionals, such as medical
    providers and lawyers, insurance agents, by home contractors,
    by body shops, as well as everyday Americans, our friends,
    coworkers, and neighbors.
        The schemes go beyond just inflating insurance claims. Some
    of them can leave businesses and consumers in financial ruin,
    some can injure and even kill innocent consumers. Our submitted
    statement includes a comprehensive list of these scams and some
    of the ways that the fraud-fighting community is looking to
    counter them.
        During the last 20 years, property/casualty insurers have
    helped counter the growing threat by establishing investigation
    units within their company and investing heavily in training
    and in technology. And on that last point, the sharing of
    claims data by these insurance companies has been absolutely
    essential in helping to detect fraud, especially some of the
    schemes by these organized criminal enterprises that are
    defrauding billions of dollars.
        I would also like to mention that the property/ casualty
    industry also participates in the successful Healthcare Fraud
    Prevention Partnership. This is a collaborative effort in which
    Medicare, Medicaid, TRICARE, the VA, private health plans, and
    others share data and intelligence on crooked medical
    providers. And to date, this effort, this public-private
    partnership, has saved over $300 million. And we just will
    continue to see good things from them in the future.
        However, the property/casualty insurers are not allowed to
    access or to contribute to the data in this rich pool of anti-
    fraud information because of restrictions in HIPAA, and that's
    a shame because we know that some of the fraudsters that are
    ripping off property/casualty insurers are also defrauding
    Medicare and Medicaid, and vice versa. And I know it's beyond
    the jurisdiction of this Committee, but at some point, I hope
    Congress will take a look at that, and maybe we can resolve it
    at some point.
        On the state level, following up on Commissioner Doak,
    state legislatures really have come to the table and have
    enacted some very responsible anti-fraud initiatives. To date,
    all states but two have enacted specific fraud statutes to
    define insurance fraud and set penalties.
        Thirty-eight states have established anti-fraud units that
    investigate and prosecute insurance fraud. Many of them have
    police powers. And some of them have prosecutors within their
    departments that specifically only do insurance fraud, and that
    has really done a lot to help over the last few years.
        There is a high level of collaboration between these state
    agencies and insurance companies in fighting fraud, and that in
    part is spurred because most states do require insurance
    companies to report fraud and to sponsor active anti-fraud
    programs within the companies.
        However, after 20 years of increasing efforts to combat
    fraud, we're convinced that we're never going to arrest or
    convict our way out of this problem. More focus has to be on
    prevention and deterrence of insurance fraud. And public
    outreach programs, again like the Commissioner mentioned, have
    been vital in helping to alert consumers about some of the
    scams that can impact them, and also help otherwise honest
    people understand that there's a high price to pay for
    committing insurance fraud. And the research that we've done
    and others have done demonstrates that these programs are
    powerful in helping to stop fraud, and we need many more of
    them.
        We use social media to try to engage consumers directly
    and, again, help to educate them about some of the scams, but
    also we see on social media that people brag about committing
    insurance fraud. Some actually use social media, Facebook, and
    Twitter, to solicit others to help them execute scams. We
    communicate with them, too, and hopefully we'll have an impact
    on that.
        So at a time when the acceptance of unethical behavior
    seems to be increasing across the country, it's important that
    we have strategies that help to counter some of these trends.
        So in conclusion, while I think we've come a long way in
    recent years, insurers, state governments, even the Federal
    Government, in combating fraud, and we need to be proud of
    that, we need to understand we're still a long ways away of
    turning the corner on insurance fraud. But we feel through
    continued collaboration and perhaps some of these prevention
    and deterrence efforts, we'll continue down the path of curbing
    insurance fraud and the associated costs to help save all
    Americans some money.
        Thank you.
        [The prepared statement of Mr. Jay follows:]

             Prepared Statement of Dennis Jay, Executive Director,
                       Coalition Against Insurance Fraud
        Mr. Chairman, members of the Committee. My name is Dennis Jay and I
    am Executive Director of the Coalition Against Insurance Fraud. I
    commend you for holding this hearing and shedding light on an issue
    that affects virtually every consumer and every business in the United
    States.
        The Coalition Against Insurance Fraud was founded 24 years ago as a
    national, broad-based alliance of major stakeholders in the fight
    against fraud--specifically consumers, government agencies and
    insurance companies. More than 150 mostly national organizations belong
    to our coalition.
        Our mission is to help unite the forces working to combat fraud
    while focusing on legislative advocacy in the states, empowering
    consumers and conducting meaningful and useful research. The Coalition
    seeks to curb fraud in all lines of insurance no matter who may be a
    victim or a perpetrator.
        We have successfully helped enact anti-fraud legislation in more
    than 20 states with what we call ``balanced bills.'' This means they
    not only include criminal and civil penalties for defrauding insurers,
    but also include sanctions against people in the insurance industry who
    defraud consumers.
        Fraud is committed by organized fraud rings, by professionals such
    as medical providers, lawyers and insurance agents, by home contractors
    and auto body shops as well as everyday Americans--our neighbors,
    friends and co-workers. Our research suggests this is an equal-
    opportunity crime committed by people of all ages, income levels,
    races, gender sand education levels. Most Americans admit to knowing
    someone who has committed insurance fraud.
        Today, we would like to provide background on the impact and cost
    of insurance fraud in the United States and give you an update of the
    state of the fraud fight in property/casualty insurance.
        Fraud involving automobile insurance, homeowners coverage and
    commercial insurance continues to be a drain on consumers, businesses
    and society in general. No one knows the total cost of insurance fraud
    because of the hidden nature of the crime. The data the Coalition
    analyzes from insurers, government agencies and others suggest
    insurance fraud costs tens of billions of dollars each year. This
    expense creates
        hardships for low and middle-income consumers who are forced to pay
    an annual ``fraud tax'' on premiums for car and home insurance--as well
    as a built-in cost on every good and service.
        Additionally, some scams injure and even kill innocent consumers.
    Businesses also suffer when they can ill-afford workers compensation
    insurance because of rising premiums due to fraud. Left unchecked, this
    can also cause an ever-increasing spiral as others become more tempted
    to commit insurance fraud as premiums continue to climb.
    Types of insurance fraud.
        Insurance fraud is one of the most eclectic crimes in America.
    Types of fraud include:

        Automobile--staged crashes. Perpetrators can include runners, who
    coordinate the scams, drivers, passengers, lawyers and medical
    providers. Scammers intentionally cause cars to collide--sometimes with
    innocent motorists--to file fake damage and medical claims. This type
    of fraud is most severe in states that have no-fault automobile
    insurance. Lives are jeopardized when innocent motorists are maneuvered
    into car crashes staged by crime rings to collect large injury payouts
    from auto insurers. A family of three burned to death when a setup
    crash went awry after their car was hit by two large trucks on a
    California freeway. A grandmother in Queens, N.Y. died when her car
    went out of control after she was maneuvered into a staged crash. One
    organized ring in New York City collected more than $279 million in
    false claims through a network of chiropractors, lawyers and staged
    crash coordinators.\1\
    ---------------------------------------------------------------------------
        \1\ ``Colossal crash ring in permanent reverse,'' http://
    www.insurancefraud.org/article.htm
    ?RecID=3453, December 23, 2015
    ---------------------------------------------------------------------------
        In many cases, medical clinics in these scams are secretly owned by
    organized rings, employ a licensed physician to front for them and
    offer no real medical services. The tactics by many of these organized
    fraud rings can change quickly as insurers and government investigators
    focus on their scams. One day they may be involved in bogus
    chiropractic care; and the next they are billing for questionable
    medical procedures or useless nerve testing.\2\ Additionally, motorists
    with real injuries may be subject to useless template treatment that
    does nothing to alleviate their injuries, and may enhance their injury.
    ---------------------------------------------------------------------------
        \2\ Scammers evolve tactics for medical equipment, sham clinics,
    nerve tests, Robert A. Stern and James A. McKenney, Journal of
    Insurance Fraud in America, April 2017.
    ---------------------------------------------------------------------------
        Automobile--padding/false claim. This usually occurs by a consumer,
    a body shop or glass-repairs facility that pads damage on an existing
    automobile claim, or submits a bill for unnecessary work or work not
    done in connection with an auto accident. In some cases, body shops
    will intentionally inflict more damage after the vehicle has been towed
    to their facility in order to increase their profits. Repairs may be
    substandard or haphazard, placing unsafe vehicles back on the road.
        Automobile--give-up. Give-ups involve falsely reporting a vehicle
    stolen when it actually is hidden, shipped overseas, repossessed,
    dumped in a body of water, buried or burned. Perpetrators can include
    car owners and the people they hire to get rid of their vehicles. This
    crime is more severe during economic downturns when people feel they
    can no longer afford monthly auto payments or they are ``underwater''
    on their loans. One factor that seems to encourage this fraud is longer
    loan terms (five and six years), when the loan balance is greater than
    the value of the vehicle. High gas prices also are a factor, especially
    of gas guzzlers, such as SUVs. Give-ups and can include motorcycles,
    recreational vehicles, boats and even farm equipment.
        Automobile--underwriting. Underwriting fraud in auto insurance
    includes lying on an application to reduce premium or gain coverage
    that one wouldn't otherwise be qualified to obtain. Deceptions can
    include untruths about driving record, miles driven, where the car is
    garaged, and number and age of drivers in household. Auto underwriting
    fraud is also called rate evasion. This type of fraud causes the
    insurance rates of honest people to increase in order to subsidize
    either the increased risk presented or the accidents of the people who
    cheat.
        Rate evasion has increased in recent years as more people purchase
    insurance online rather than by telephone or in person through an
    insurance agent. One version of this scam is the ``crash and buy''
    scheme. Motorists who fail to purchase auto insurance get in accidents
    and then buy coverage and lie, claiming the accident occurred post-
    purchase.
        Business--arson. Owners or operators who burn down or hire someone
    to torch a business, which is usually failing, for profit. Arson is
    more frequent during economic downturns. Cases have included building
    owners of occupied houses and apartments. In some cases, fire has
    spread to adjacent businesses and homes that also destroy these
    structures, placing lives and jobs at risk. This type of insurance
    fraud spans all socio-economic levels. Sadly, every year first-
    responders such as fire fighters die from battling intentionally-set
    fires.
        Business--padding/faking. This type of fraud includes inflating a
    legitimate claim, or faking a theft or damage claim on a business. A
    classic case is inflating the value of inventory after a fire or flood.
        Contractor fraud. Home contractors can defraud both insurers and
    consumers, from doing shoddy work to stealing claims payments. During
    natural disasters, unlicensed contractors from out of state are
    especially prone to committing fraud. Documented cases include
    contractors causing added damage to roofs and siding to billing the
    insurer for repair work.
        Drug diversion. The opioid crisis affects property/casualty
    insurance as well as health insurers. Drug diversion includes the
    prescribing, distribution, selling, acquiring or using legal
    prescription drugs for illegal or illicit purposes. It is committed
    when patients addicted to painkillers and other prescription drugs
    illegally receive drugs from doctors, pharmacists, and street dealers.
    Physicians and pharmacists commit drug diversion when they knowingly
    prescribe and dispense painkilling drugs for no legitimate medical
    reason. Property/casualty insurers face these scams when they reimburse
    claimants and medical providers who treat auto accident victims,
    premises liability and workplace injuries.
        Homeowners--arson. This includes burning a home that is either
    owned or rented to profit from claimed payments. Perpetrators can
    include home and business owners and the people they hire to commit the
    arson. Organized rings in major urban centers also have bought run-down
    homes, over-insured them and then set them on fire. One ring in South
    Florida was caught after photos of the same singed furniture kept
    showing up in claims for different house fires.\3\
    ---------------------------------------------------------------------------
        \3\ ``Smoking Out Insurance-Arson Rings Earns Laura Uriarte
    Prosecutor Of Year Award,'' news release, January 12, 2017.
    ---------------------------------------------------------------------------
        Homeowners--padding/faking. This includes inflating a legitimate
    theft or damage claim on a home or apartment. Sometimes fake receipts
    are used to inflate claims. Another common scheme is reporting a false
    burglary claim.
        Fraud by insurance agents. Dishonest insurance agents and brokers
    defraud consumers by failing to remit their premiums to insurers, and
    sometimes by selling fake policies backed by no insurer. This type of
    fraud can leave consumers in financial ruin if they experience a major
    loss, such as a home or business fire or a large liability lawsuit.
        Fraud by insurance company employees. Most criminal cases include
    claims-check diversion by claims adjusters who collude with a
    legitimate or fake claimant. Company employees also manufacture claims,
    manipulating the claims system. There also have been rare cases of
    insurance executives who loot companies and jeopardize the ability to
    pay claims. Some fake companies also have sold bogus coverage and have
    no wherewithal to pay claims. Often these criminals use the names of
    legitimate insurers to fool insurance buyers.
        Liability--false claim. Grocery stores, restaurants, other
    businesses and homeowners face false claims by people who fake injury
    on their property. ``Slip and falls'' can result in large payouts to
    injured victims and their lawyers. In some cases, people have falsely
    claimed they found rodents, glass and severed fingers in food ordered
    in restaurants.
        Fraud by public adjusters. Unlike adjusters who work for insurance
    companies, public adjusters are allowed to represent claimants in many
    states. They are paid a percentage of the final claims payment. Thus
    they have an incentive to illegally inflate the claims payment as high
    as possible, sometimes illegally by manufacturing losses. Crooked
    public adjusters can collude with attorneys and contractors to increase
    losses cause by water damage, fire and other perils.
        Workers compensation fraud by workers. This fraud includes workers
    who fake injuries, refuse to go back to work after they heal, or have a
    side job while still collecting benefits. It is often encouraged by
    lawyers and medical providers who profit the more severe the injury and
    the longer the employee is off the job. During the 2008-2010 recession,
    solicitors were stationed outside of unemployment offices to encourage
    recently laid-off workers to file false injury claims.
        Workers compensation fraud by employers. These scams occur when a
    business lies about how many employees it has, the types of jobs
    workers do, and their overall workers compensation claims experience.
    It is especially prevalent in the construction industry, where builders
    may employ undocumented workers off the books. Large businesses can
    saves hundreds of thousands of dollars in annual workers compensation
    premiums by committing underwriting fraud. The money they save can be
    used to underbid their honest competitors on construction bids.
    Organized rings also help businesses commit fraud by ``renting'' them
    shell corporations to use to buy coverage and fool insurers.\4\
    Employee leasing schemes and the practice of declaring employees as
    independent contractors both are prevalent in workers compensation
    rate-evasion fraud.
    ---------------------------------------------------------------------------
        \4\ ``Shell games: How construction cons steal workers-comp
    premiums,'' by David M. Borum and Geoffrey R. Branch, Journal of
    Insurance Fraud in America, February 2017
    ---------------------------------------------------------------------------
        Workers compensation fraud by medical providers. The no-fault
    system of treating and compensating injured workers has generally
    worked well since its creation in the early 20th century. However, the
    no-fault aspect of the system appears to be an open invitation for
    dishonest medical providers to exploit injured workers and plunder the
    system. Schemes includes billing for services not rendered or needed,
    including chiropractic care, diagnostic tests and prescription drugs.
    In California alone, medical fraud in the workers compensation system
    costs multiple billions of dollars each year.
    Anti-fraud efforts by industry
        During the last 20 years, property/casualty insurers have helped
    counter the growing fraud threat by establishing investigation units,
    and investing in training and technology. In 2016, nearly three-
    quarters of insurers were deemed to be fully engaged in using anti-
    fraud technology to better and more quickly detect fraud.\5\ Property/
    casualty insurers also support organizations that provide training and
    credentialing programs for investigators and claims personnel.
    ---------------------------------------------------------------------------
        \5\ ``The State of Insurance Fraud Technology,'' Coalition Against
    Insurance Fraud, November, 2016.
    ---------------------------------------------------------------------------
        Increasingly, insurers have resorted to civil lawsuits against
    medical providers to return payments from fraudulent claims, and to
    send a message that fraud won't be tolerated.\6\
    ---------------------------------------------------------------------------
        \6\ Insurer success in suing fraudsters expected to increase civil
    actions,'' Duane Morris Health Law, February 17, 2015
    ---------------------------------------------------------------------------
        The sharing of claims data among property/casualty insurers has
    proven to be instrumental in detecting suspected fraud, especially by
    organized rings. Property/casualty insurers also participate in the
    successful Healthcare Fraud Prevention Partnership (HFPP).\7\ This
    collaborative effort is a forum for Medicare, Medicaid, Tri-care,
    private health plans and others to share intelligence about schemes by
    medical providers who cost taxpayers and insurance buyers tens of
    billions of dollars each year. Government health programs and private
    health plans are allowed to pool and access data on suspect medical
    providers. This effort has uncovered dozens of schemes, and has so far
    saved nearly $300 million.
    ---------------------------------------------------------------------------
        \7\ Healthcare Fraud Prevention Partnership website, https://
    hfpp.cms.gov/
    ---------------------------------------------------------------------------
        However, property/casualty insurers are not allowed to share or
    access HFPP data because of restrictions of the Health Insurance
    Portability and Accountability Act (HIPAA). The Coalition views this
    restriction as a lost opportunity: Research shows that many medical
    providers who defraud property/casualty insurers also file false claims
    against government programs, and vice versa.
    Anti-fraud efforts of government
        During the last 20 years, state governments have responded
    positively to what they see as the growing threat of insurance fraud.
    All states but two (Oregon and Virginia \8\) have enacted specific
    insurance fraud statutes to define fraudulent acts and set penalties.
    Additionally, 38 states and the District of Columbia have established
    specific agencies to investigate and prosecute insurance fraud. Most of
    these state agencies have police powers, and several employ prosecutors
    to exclusively deal with insurance fraud cases.
    ---------------------------------------------------------------------------
        \8\ While Virginia does not have a specific insurance fraud
    statute, it does have an insurance fraud bureau housed within the state
    police.
    ---------------------------------------------------------------------------
        In many states, such as California, Florida, New Jersey and New
    York, insurance fraud bureaus are full law-enforcement agencies with
    hundreds of investigators employed in their units.
        Together, state insurance fraud bureaus receive some 150,000
    referrals each year about incidents of insurance fraud. Referrals are
    received from insurers, consumers and other law-enforcement agencies.
        There is a high level of collaboration and cooperation among these
    state agencies and insurers in investigating and prosecuting fraud. A
    total of 43 states require insurers to report cases of suspected fraud.
    Several also require insurers to sponsor internal investigation units
    and provide training.
        At least a half-dozen fraud bureaus also sponsor advisory
    committees to gain feedback and intelligence from stakeholders in the
    state, and to discuss ongoing anti-fraud efforts. The Coalition Against
    Insurance Fraud currently serves on five of those advisory panels.
        In addition to referring cases for criminal prosecution, several
    fraud bureaus also have authority to take lower-level cases on an
    administrative and civil basis.\9\
    ---------------------------------------------------------------------------
        \9\ ``Un-civil civil penalties can thwart fraudsters,'' by Howard
    Goldblatt, April 20, 2017, https://www.insurancefraud.org/blog/apr-
    2017/un-civil-civil-penalties-can-thwart
    ---------------------------------------------------------------------------
    Other efforts to counter fraud
        Efforts by insurers and government agencies to detect, investigate
    and prosecute insurance fraud is vital to curbing these costly crimes.
    However, after more than 20 years of increasing efforts to combat
    fraud, it's clear our Nation will never arrest or convict its way out
    of insurance fraud.
        No one knows what percentage of insurance fraud is detected.
    Informal surveys of insurers suggest it may be anywhere from 20 to 50
    percent. Only a small percentage of those cases is ever opened for
    investigation by law enforcement agencies, and even a smaller
    percentage is ever adjudicated.
        In recent years, more efforts have focused on prevention and
    deterrence. Public outreach messages help convince otherwise honest
    consumers that they will a high price for cheating on insurance.\10\
    ---------------------------------------------------------------------------
        \10\ Social-marketing campaigns taking on small-time crimes, by
    Virginia Roth and Bernard Host, Journal of Insurance Fraud in America,
    January 2016. https://www.insurancefraud.org/jifa/jan-2016/social-
    marketing-campaigns-taking-o
    ---------------------------------------------------------------------------
        Research by the Coalition Against Insurance Fraud and others
    suggests that this strategy is helping to reduce fraudulent claims and
    encourage consumers to report fraud. The Coalition also has adopted a
    strategy of communicating directly with consumers through social media
    about insurance fraud issues, especially about schemes that target
    consumers, such as staged accidents, fake airbags, contractor fraud,
    dishonest insurance agents and medical ID theft. The use of
    Facebook,\11\ Twitter \12\ and other social-media outlets helps educate
    consumers about fraud, empowers them to avoid being scammed, and
    reduces their tolerance of this crime. Users of social media sometimes
    brag about the fraud they have committed and solicit others for help in
    executing scams.
    ---------------------------------------------------------------------------
        \11\ https://www.facebook.com/insurancefraud
        \12\ https://twitter.com/insurance_fraud
    ---------------------------------------------------------------------------
        At a time when the acceptance of unethical behavior seems to be
    increasing in our nation, it is important to have strategies in place
    that will counter this negative trend.
    In conclusion
        Insurers, state governments and the Federal government are light
    years away from where they were just twenty years ago in seeking to
    curb insurance fraud in the U.S. However, we still have a long way to
    go before we turn the corner on this crime. The Coalition Against
    Insurance Fraud is confident, however, that through continued
    collaboration, and though efforts to deter and encourage vigilance by
    all stakeholders, we will continue down the path of reducing the high
    costs of insurance fraud.

        Senator Moran. Mr. Jay, thank you very much.
        Now, Mr. Kevelighan.

        STATEMENT OF SEAN KEVELIGHAN, CHIEF EXECUTIVE OFFICER,
                    INSURANCE INFORMATION INSTITUTE

        Mr. Kevelighan. Thank you very much, Chairman Moran,
    Ranking Member Blumenthal, and Committee members. I appreciate
    the opportunity to address you here today about current issues
    facing the insurance industry and consumers when it comes to
    insurance fraud in America.
        My name is Sean Kevelighan. I'm Chief Executive Officer of
    the Insurance Information Institute. We are an industry-funded
    organization that has been at work for over 50 years. Our job
    is to, and our mission is to, explain what insurance does and
    how it works to consumers, public policy members, and members
    of the media as well.
        Our members are primarily property and casualty, P&C,
    insurers, although 70 percent of our members also offer life
    insurance solutions.
        Today, I will focus on fraud trends P&C insurers are seeing
    and how insurers and consumers can protect themselves against
    these crimes.
        As economic first responders, P&C insurers paid out more
    than $327 billion in 2015 to settle claims. Many of these were
    to auto repair companies as well as building contractors, and
    this will undoubtedly be the case in 2017.
        Insurance companies recognize the overwhelming majority of
    claims they receive are legitimate, and in those cases, the
    claims are paid out promptly. In fact, in the U.S., the
    consumers are recognizing them. Home insurers this year, from
    J.D. Power, received their highest rankings ever.
        The relationship between insurers and consumers is one of
    trust. Consumers trust that insurance will help rebuild after
    catastrophes happen. While the insurer trusts that the reported
    information provided by the consumer is accurate and honest,
    unfortunately, whenever there is an incident of fraud, it has
    damaging consequences for the consumer and the insurance
    company. In fact, Deloitte estimated in 2012 that P&C insurers
    paid out as much as $30 billion, nearly 10 percent of all
    claims, for fraud.
        Such claims create an additional cost, which insurers must
    factor into their underwriting and administration, resulting in
    all consumers having to pay higher premiums. This, in essence,
    puts a strain on the trust in the relationship. And for this
    reason, the insurance industry is dedicated to doing whatever
    it can to prevent fraud.
        Five years ago--since the 5 years that Deloitte released
    its fraud study, insurers and the state regulatory departments
    have dramatically improved their fighting efforts, and we're
    hearing that today. Insurers have allocated additional
    resources, whether in their special investigation units or
    extra training, while today, nearly every state department, as
    we heard from Oklahoma, has in-house fraud bureaus, and they
    are getting results.
        Aside from what we heard here today from California, if you
    look at the State of California, Commissioner Dave Jones has
    issued nearly a dozen news releases about insurance fraud cases
    in his department as either uncovered or worked on. The
    California cases included fraudulent claims for auto collisions
    that were either staged or never happened, or dealt with worker
    compensation claims where the number of employees was
    misrepresented or that the jobs that they undertook was
    misrepresented. These frauds drive up the costs.
        One of the things that is interesting that P&C insurers are
    now seeing is how all of these are evolving, and as technology
    improves, so are the fraudsters improving the ways that they
    get more sophisticated and commit these crimes. And at the same
    time, consumers are increasingly wanting to buy their insurance
    policies from their mobile phones, they want to file a claim
    through their smartphone via photo. And the question is, How
    can they verify all this?
        Fortunately, this is where the industry is beginning to
    embrace new technological innovations stemming from big data
    and artificial intelligence that will help improve delivery of
    their services to the U.S. consumer and reduce costs.
        As we are seeing in so much of our lives, technology and
    digitalization can help bring benefits to society, in this
    case, by rooting out unwanted fraud. A report released last
    month by Boston-based Aite outlined the fact that insurers are
    recognizing their fraud-fighting efforts must adapt to the
    criminals and are finding that these efforts are actually
    creating quite optimistic results, whether through data
    aggregation, verification, or analyzing the data, and also
    using artificial intelligence and predictive analytics. The
    result, insurers are equipping themselves with technology tools
    they need to neutralize high-tech criminals.
        As much as these emerging technologies make a positive
    impact, there will always be a human element to combating
    fraud, and that is where the I.I.I. plays a role. Consumers
    must have the information they need to make prudent financial
    decisions and to protect themselves from fraudulent activities.
    The I.I.I. is proud of the role it plays in keeping consumers
    informed.
        Thank you again for the opportunity to speak before you
    today.
        [The prepared statement of Mr. Kevelighan follows:]

        Prepared Statement of Sean Kevelighan, Chief Executive Officer,
                        Insurance Information Institute
        Chairman Moran, Ranking Member Blumenthal, and committee members. I
    appreciate the opportunity to address you today about the current
    issues facing the insurance industry and consumers when it comes to
    insurance fraud in America.
        My name is Sean Kevelighan and I am the Chief Executive Officer of
    the Insurance Information Institute (I.I.I.). The Institute is an
    industry-funded consumer education organization. We explain what
    insurance does, and how it works, to consumers, the media, and public
    policymakers.
        The I.I.I.'s members include the Nation's largest auto, home, and
    business insurers. While much of our work focuses on property/casualty
    ``(P/C)'' insurers, nearly 70 percent of our members also offer life
    insurance solutions. Today I will focus on the insurance fraud trends
    P/C insurers are seeing, and how insurers and consumers can protect
    themselves against these crimes.
        In its role as the U.S.'s economic first-responders, P/C insurers
    paid out more than $327 billion in 2015 to settle claims. Two years
    ago, many of these claim payout dollars went to auto repair companies
    and building contractors. This will undoubtedly be the case in 2017 as
    well. Insurers provide the capital infusion that allows consumers to
    recover after an accident, a fire, a windstorm, or another incident
    that causes either property damage or an injury.
        Insurance companies recognize the overwhelming majority of claims
    they receive are legitimate, and these claims are paid promptly. U.S.
    consumers also recognize this fact. Indeed, in 2016 U.S. home insurers
    scored their highest-ever satisfaction rating among consumers who filed
    a claim, according to a J.D. Power survey. Insurers were given a score
    of 859 on a 1,000-point scale.
        The relationship between insurers and consumers is one of trust.
    Consumers trust that insurers will help them re-build when catastrophe
    strikes, while the insurer trusts that the reported information
    provided by the consumer is honest. Unfortunately, whenever there is an
    incident of fraud it has damaging consequences for the consumer and
    insurance company alike. In fact, Deloitte estimated in a 2012 report
    that P/C insurers paid around $30 billion annually--nearly 10 percent
    of their total claim payouts--in fraudulent auto, home, and business
    insurance claims. Such claims create additional costs, which insurers
    must factor into underwriting and administration--resulting in all
    consumers having to pay more in premium. This, in essence, puts a
    strain on the trust relationship. And for this reason, the insurance
    industry works tirelessly to prevent fraud.
        In the five years since Deloitte released its insurance fraud
    study, insurers and the state insurance departments that regulate them
    have dramatically improved their fraud-fighting efforts. Insurers have
    allocated additional resources to their internal Special Investigations
    Units (SIUs) and expanded their training of claims adjusters to detect
    fraudulent activity. Moreover, nearly every state insurance department
    has an in-house fraud bureau. And they are getting results.
        For example, California Insurance Commissioner Dave Jones has
    issued this year alone nearly a dozen news releases on insurance fraud
    cases his Department either uncovered or worked on. The California
    cases involved the filing of fraudulent claims for auto collisions that
    were either staged or never occurred. Others dealt with workers'
    compensation insurance fraud, such as instances in which employers
    either misrepresented the number of employees who worked for them or
    misclassified the jobs the employees undertook. This type of fraud
    drives up the cost of doing business for a state's employers.
        Insurance fraud schemes are, however, always evolving and getting
    more sophisticated, especially as insurance transactions are
    increasingly conducted online. Consumers increasingly want to buy
    insurance policies from their mobile devices, and have their insurance
    claims paid solely on the basis of the photo they send electronically
    to their insurer.
        But how can insurers verify the identity of the mobile-device user,
    or the legitimacy of a property damage claim, without having the
    subject of the claim inspected personally by a claims representative?
        This is where the insurance industry's embrace of new technological
    innovations stemming from big data and artificial intelligence will
    help improve delivery of their services to the consumer and reduce
    costs. As we are seeing in so much of our lives, technology and
    digitalization in insurance can help bring benefits to society; in this
    case by rooting out unwanted fraud.
        In a report released last month, the Boston-based Aite (EYE-TAY)
    Group outlined the fact that insurers are recognizing their fraud-
    fighting efforts must adapt to this new era, and found reason for
    optimism. The Aite Group reports insurers are retaining state-of-the-
    art vendors, like data aggregators, producers, and receivers and then
    analyzing this data through the use of artificial intelligence and
    predictive analytics. The result? Insurance companies are equipping
    themselves with the high-tech tools they need to assess a prospective
    customer, verify a claim, and identify suspicious activity.
        As much as these emerging technologies make a positive impact,
    there will always be a human element to combatting fraud, and that is
    where the I.I.I. plays a role. Consumer education is at the core of
    what we do, whether it be through our website content, media relations
    efforts, or public speaking engagements.
        Like insurers, consumers must have the information needed to make
    prudent financial decisions and to protect themselves from fraudulent
    activities. The I.I.I. is proud of the role it has played in keeping
    consumers informed and vigilant about rogue contractors, staged auto
    accidents, and the criminals who want either to steal their insurance
    proceeds--or even their identity.
        Thank you again for the opportunity to speak before you today.

        Senator Moran. Mr. Kevelighan, thank you very much.
        Now, Mr. Lynch.

     STATEMENT OF TIMOTHY J. LYNCH, DIRECTOR, GOVERNMENT AFFAIRS,
                    NATIONAL INSURANCE CRIME BUREAU

        Mr. Lynch. Good morning, Mr. Chairman and members of the
    Committee. My name is Tim Lynch. I'm the Director of Government
    Affairs at the National Insurance Crime Bureau, based in Des
    Plaines, Illinois. The NICB is a national not-for-profit
    organization supported by 1,100 insurance companies who
    collectively write about 80 percent of the Nation's property
    and casualty insurance premiums. We are led by President and
    Chief Executive Officer Joe Wehrle, who is also a retired
    lieutenant general in the U.S. Air Force.
        Working with our member companies, legislators, regulators,
    and law enforcement, we investigate organized criminal groups
    that commit insurance fraud and vehicle crime. We have a 105-
    year history of established cooperation with Federal, state,
    and local law enforcement to fight insurance fraud and help
    protect the American people from organized criminal rings.
        Our investigative efforts are focused on external claims
    fraud, that is, multi-claim, multi-carrier scams perpetrated by
    organized criminal groups. Through a collective means of
    investigation, data analysis, legislative advocacy, training,
    and public awareness, NICB targets the most egregious forms of
    insurance fraud and vehicle crime. Some of the schemes we see
    are staged auto accidents, cargo theft, vehicle crime, and
    medical fraud abuses, just to name a few.
        I'll focus briefly today on three areas: medical fraud,
    vehicle crime, and contractor fraud, as alluded to by
    Commissioner Doak and Mr. Jay.
        Several years ago, NICB made an adjustment to devote more
    resources to fighting medical-related fraud based on a surge of
    inflated medical billing and collusion between disreputable
    doctors and other health care providers. To address this surge,
    since 2002, NICB has opened eight Major Medical Fraud Task
    Forces across the country in areas such as Chicago, Houston,
    New York, and just down the road from here in Fairfax,
    Virginia.
        In 2012, based on our national reach and credibility on the
    topic of medical fraud, NICB was asked to serve on the
    Executive Board of the Healthcare Fraud Prevention Partnership
    under the U.S. Department of Health and Human Services. We know
    from experience that there is a significant amount of crossover
    between the fraud that impacts property and casualty insurers
    and the fraud that impacts Medicare, Medicaid, and private
    health insurance.
        Building on the NICB model, the HFPP is working to share
    data and investigations across all lines of insurance to better
    detect fraud and assist law enforcement to root out potential
    criminal activity. For example, in 2014, our data analytics
    team compared over $900 million of health care claims data to
    NICB data resulting in the identification of over 100 schemes
    with health care and property/casualty fraud exposure. In other
    words, these folks, these organized rings, they don't
    discriminate, they'll rip off anyone.
        In terms of vehicle-related crime, NICB's experience with
    this issue dates back to our founding in 1912. Stolen vehicles
    are profitable, whether intact, parted out, or illegally
    exported. Regardless if these vehicles are shipped overseas or
    sold here in the U.S., buyers of these vehicles often do not
    know these vehicles might be stolen. The essential, but
    missing, piece that enables this kind of black market
    enterprise is information.
        Congress itself recognized this deficiency and, in 1992,
    passed legislation that created the National Motor Vehicle
    Title Information System, known as NMVTIS. Its purpose is to
    help protect consumers from unsafe vehicles and to keep stolen
    vehicles from being resold. We have served on the advisory
    board for NMVTIS since 2010.
        This program, which is administered by the U.S. Department
    of Justice, protects states and consumers from fraud, reduces
    the use of stolen vehicles for illicit purposes, and provides
    consumers protection from unsafe vehicles. NMVTIS is intended
    to ensure key vehicle history information is available to
    consumers so they may make well-informed decisions.
        Finally, as mentioned by Commissioner Doak and Mr. Jay,
    another issue where we've seen many abuses is in the area of
    roofer and contractor fraud. We've been very active on this
    matter from a legislative and public awareness standpoint, and
    we see numerous cases of exploitation from our team of
    investigators.
        In short, this issue is pretty simple. In areas impacted by
    a severe weather event and there is serious damage to homes,
    dishonest repair contractors descend on these scenes,
    oftentimes within a day or two, and entice consumers into scams
    involving phony contracts, offers of free repairs, and filing
    bogus claims. Examples of inflating roof damage, as
    Commissioner Doak mentioned, are also prevalent, as well as
    these folks collecting a down payment from people to do no work
    and then to leave town. Several states have taken action to
    crack down on this, as Mr. Jay mentioned, including Oklahoma,
    Texas, and others.
        We have worked with state departments of insurance and are
    willing to work with others, and we've worked with Commissioner
    Doak, on increasing public awareness of this issue using
    billboards, social media, and public service announcements.
        In closing, Mr. Chairman, thank you for the opportunity to
    be here. I'm pleased to answer any questions at the appropriate
    time. Thank you.
        [The prepared statement of Mr. Lynch follows:]

     Prepared Statement of Timothy J. Lynch, Director, Government Affairs,
                        National Insurance Crime Bureau
        Good Morning Mr. Chairman and Members of the Committee, my name is
    Tim Lynch, Director of Government Affairs at the National Insurance
    Crime Bureau (NICB), based in Des Plaines, Illinois. The NICB is a
    national, not-for-profit organization supported by approximately 1,100
    insurance companies that collectively write nearly 80 percent of the
    Nation's total property/casualty insurance premium. NICB is led by
    President and Chief Executive Officer Joe Wehrle. Mr. Wehrle is a
    retired Lieutenant General in the United States Air Force.
        Working with our member companies, legislators, regulators and law
    enforcement, we investigate organized criminal groups that commit
    insurance fraud and vehicle crimes. We have a 105-year history of
    established cooperation with federal, state and local law enforcement
    agencies to fight insurance fraud and help protect the American people
    from criminal enterprises.
        NICB's investigative efforts are mainly focused on external claims
    fraud--multi-claim, multi-carrier scams perpetrated by organized
    criminal groups. Through a collective means of investigation, data
    analysis, training, public awareness and legislative advocacy, NICB
    targets the most egregious forms of insurance fraud and vehicle crimes.
    Some of the fraud schemes we are involved with are staged auto
    accidents, cargo theft and medical fraud abuses.
        I will focus my remarks today on 3 key areas: medical fraud,
    vehicle crime, and some recent state legislative activity on roofer/
    contractor fraud.
        Several years ago, NICB made a strategic adjustment to devote more
    resources to fighting medical-related fraud based on a surge of
    inflated medical billing, collusion between disreputable doctors and
    other healthcare providers. To address this surge, since 2002, NICB has
    opened eight Major Medical Fraud Task Forces in major population
    centers such as Chicago, Houston, New York and not far from here in
    Fairfax, Virginia.
        In 2012, based on our national reach and credibility on the topic
    of medical fraud, NICB was asked to serve on the executive board of the
    Healthcare Fraud Prevention Partnership (HFPP) under the U.S.
    Department of Health and Human Services. We know from experience that
    there is a significant amount of crossover between fraud impacting
    property/casualty insurers and fraud impacting Medicare, Medicaid and
    private health insurance.
        Building on the NICB model, the HFPP is working to share data and
    investigations across all lines of insurance to better detect fraud and
    assist law enforcement to root out potential criminal activity. For
    example, in 2014, our data analytics team compared over $900 million of
    healthcare claims data to NICB data resulting in the identification of
    over 100 schemes with health care and property/casualty fraud exposure.
        In terms of vehicle related crime, NICB's experience with this
    issue begins over 100 years to our founding in 1912. One of the most
    common reasons for vehicle theft is the ability to generate profit from
    organized vehicle theft activities. Stolen vehicles are profitable,
    either intact, parted out or illegally exported. Regardless if these
    vehicles are shipped overseas or sold right here in the United States,
    buyers of these vehicles often do not know the vehicles are stolen. The
    essential--but missing--piece that enables this kind of black market
    enterprise is information.
        Congress recognized this deficiency and, in 1992, passed
    legislation that created the National Motor Vehicle Title Information
    System (NMVTIS). Its purpose is to help protect consumers from fraud
    and unsafe vehicles, and to keep stolen vehicles from being resold.
    NICB has served on the advisory board for NMVTIS since 2010.
        NMVTIS, which is administered by the U.S. Department of Justice,
    protects states and consumers from fraud; reduces the use of stolen
    vehicles for illicit purposes; and provides consumers protection from
    unsafe vehicles. NMVTIS is intended to ensure key vehicle history
    information is available and affordable to consumers, so consumers may
    make well-informed decisions about used vehicle purposes and to avoid
    purchasing potentially unsafe vehicles or paying more than fair market
    value for a vehicle.
        As mentioned by Oklahoma Commissioner Doak, another issue where we
    have seen egregious abuses is the area of roofer/contractor fraud. NICB
    has been very active in this matter from a legislative and public
    awareness standpoint, and we see numerous cases of exploitation from
    our team of investigators.
        In short, this issue is fairly simple. An area is impacted by a
    severe weather event, such as a tornado, and there is serious damage to
    residential communities. Dishonest repair contractors descend on these
    scenes--often times within days--and entice consumers into scams
    involving phony contracts, offers of ``free repairs'' and filing bogus
    claims. Instances of these individuals inflating roof damage is also
    prevalent, as well as collecting a sizable down payment to perform
    services only to skip town.
        Several states have taken action to tighten up consumer protections
    against these abuses, such as Colorado, Kentucky, Illinois, Indiana,
    Minnesota, Nebraska, Oklahoma, Texas and others.
        Since our industry is regulated at the state level, we have also
    worked with state departments of insurance--including Commissioner Doak
    on increasing public awareness of this issue using billboards, public
    service announcements and social media.
        We would encourage the committee members--especially those who
    represent areas prone to severe weather--to communicate to your
    constituents that they exercise caution after severe weather events,
    and be sure to contact their insurance company before signing any
    repair contracts or providing up-front cash for materials--especially
    if it is from a contractor who just appears, unsolicited, at their
    door.
        In closing, we would like to thank Chairman Moran and the Committee
    members for their interest in insurance fraud. We ask that you keep
    these three issues in mind--medical fraud, vehicle crime and property
    fraud--as you communicate with your state departments of insurance to
    help protect the citizens of your state from insurance fraud.
        Thank you for inviting us to testify and I'd be happy to answer any
    questions.

        Senator Moran. Mr. Lynch, thank you very much.
        Welcome back, Ms. Weintraub.

                     STATEMENT OF RACHEL WEINTRAUB,

               LEGISLATIVE DIRECTOR AND GENERAL COUNSEL,

                     CONSUMER FEDERATION OF AMERICA

        Ms. Weintraub. Thank you, Chairman Moran and Ranking Member
    Blumenthal. I appreciate the opportunity to provide testimony
    on Consumer Federation of America's perspectives on insurance
    fraud in America. I am Rachel Weintraub, Legislative Director
    and General Counsel at CFA, a nonprofit association of
    approximately 280 pro-consumer groups that was founded in 1968
    to advance the consumer interest through advocacy and
    education.
        CFA is concerned about fraud by the insurance industry
    against consumers, and fraud by consumers against the industry.
    Both cost consumers dearly. Although most insurance companies
    and agent/brokers are honest and ethical, fraud by the
    insurance industry against consumers is a serious problem. It
    costs consumers when they pay premiums for unnecessary
    coverage, when they pay excessive rates for required coverage,
    when they buy insurance priced in an unfairly discriminatory
    manner, and it costs them when they are presented with
    misleading policy language that is constructed to make them
    believe they are purchasing protection they will never in fact
    receive.
        Fraud by insurers also costs consumers who face unfairly
    denied claims, underpaid claims, and claims that take too long
    to be paid. Examples abound, and here are just a few. Insurers
    have used fake engineering reports to deny flood insurance
    claims after Superstorm Sandy. Insurers have participated in
    the sale of unnecessary policies, such as the placing of
    unnecessary auto insurance onto the auto loan payments of
    borrowers who were not advised of such action by Wells Fargo,
    as we just learned last week. A Medicare Advantage insurer
    settled a whistleblower case for $32 million in a case where
    the insurer exaggerated how sick patients were.
        CFA has undertaken a series of reports on the plight of
    good-driving, lower income Americans. These consumers are
    unable to afford state-required auto insurance due to the use
    of unfair rating factors related to income. Our research has
    identified that good-driving, low-income people often pay more
    for auto insurance than wealthier people with accidents and
    tickets. It is unquestionably a defrauding of American
    consumers when insurers charge safe drivers more than unsafe
    drivers for the same coverage.
        Fraud against the insurance industry by consumers is a
    serious issue. There are two types of such insurance fraud:
    hard fraud and soft fraud.
        Hard fraud entails somewhat deliberate--someone
    deliberately planning or inventing a loss, such as a collision,
    auto theft, or fire that is covered by their insurance policy
    in order to receive a claim payment. Criminal rings are
    sometimes involved in hard fraud schemes and can steal millions
    of dollars. The data on hard fraud are fairly reliable since
    such data can be collected from criminal case records.
        Soft fraud consists of policyholders exaggerating otherwise
    legitimate claims. For example, when involved in an automotive
    collision, an insured person might claim more damage than
    actually occurred. The statistics on the extent of such soft
    fraud are unclear, and there are some incentives to overreport
    it. Congress should be cautious about claims of soft fraud
    exceeding more than a few percent of premium dollars.
        A specific consumer's likelihood to commit soft fraud
    appears to be impacted by how the consumer sees the insurance
    industry's treatment of them to be. The public's perception of
    insurers is very negative. If the industry can repair its
    image, that could positively impact the degree of fraud against
    it.
        CFA supports insurer attempts to control fraud, including
    the creation of special investigative units to look into
    suspicious claims. However, SIUs and other attempts to control
    fraud must be reasonable. Such investigations should not go on
    for extensive periods while people are not able to return to
    their home, for example.
        In conclusion, CFA is concerned about insurance fraud. We
    are aware of numerous types of fraudulent activity by a few
    insurers and by a few consumers using the insurance market,
    both of which harm the vast majority of consumers, who are
    honest and ethical. Congressional efforts should consider the
    whole range of frauds being committed in the insurance market,
    and the prospect of fraud should not be used to justify an
    unscrupulous attack on innocent consumers seeking claims
    payments.
        Thank you.
        [The prepared statement of Ms. Weintraub follows:]

       Prepared Statement of Rachel Weintraub, Legislative Director and
                General Counsel, Consumer Federation of America
        Chairman Moran, Ranking Member Blumenthal and other members of the
    Consumer Protection, Product Safety, Insurance, and Data Security
    Subcommittee. I appreciate the opportunity to provide testimony on
    Consumer Federation of America's (CFA) perspectives on Insurance Fraud
    in America. I am Rachel Weintraub, Legislative Director and General
    Counsel at CFA. CFA is a non-profit association of approximately 280
    pro-consumer groups that was founded in 1968 to advance the consumer
    interest through advocacy and education.
        CFA is concerned about insurance fraud and is working to contain it
    as well as document and identify it. We were a founding member of the
    Coalition Against Insurance Fraud and continue even today to serve on
    its Board of Directors and we conduct research to document inequality
    in the insurance market, especially the auto insurance market.
        CFA is concerned about both kinds of fraud: that is, fraud by the
    insurance industry against consumers and fraud by consumers against the
    industry. Both cost consumers dearly.
    Fraud by the Insurance Industry Against Consumers
        I will first focus on fraud by the insurance industry against
    consumers. Although most insurance companies and agents/brokers are
    honest and ethical, fraud by the insurance industry against consumers
    is a serious problem. It costs consumers when they pay premiums for
    coverage they do not need; when they pay excessive and actuarially
    unjustifiable rates for coverages they are required to buy; when they
    buy insurance priced in an unfairly discriminatory manner; and it costs
    them when they are presented with inadequate and misleading policy
    language that is constructed to make them believe they are purchasing
    protection they will never, in fact, receive. And, of course, fraud by
    insurers also costs consumers who face unfairly denied claims,
    underpaid claims and claims that take far too long to be paid.
        Examples abound, and here are just a few of many:

       Insurers, as Congress knows, have used faked engineering
            reports to deny flood insurance claims after Superstorm Sandy.
            This was documented by 60 Minutes in ``The Storm After the
            Storm.'' \1\
    ---------------------------------------------------------------------------
        \1\ https://www.youtube.com/watch?v=11VjWZvA0Ig
    ---------------------------------------------------------------------------
       At times insurers participate in the sale of unnecessary
            policies. A recent example is the placing of unnecessary auto
            insurance onto the auto loan payments of borrowers who were not
            advised of such action by Wells Fargo. This was documented just
            last week by numerous news outlets.\2\
    ---------------------------------------------------------------------------
        \2\ https://www.nytimes.com/2017/07/27/business/wells-fargo-
    unwanted-auto-insurance.html; https://www.reuters.com/article/us-wells-
    fargo-insurance-idUSKBN1AG20Q; https://www.washingtonpost.com/news/
    business/wp/2017/07/28/wells-fargo-charged-570000-customers-for-auto-
    insurance-they-didnt-need-potentially-forced-some-to-have-cars-
    repossessed/?utm_term=.9073ef7bfeff

       A Medicare Advantage Insurer settled a whistleblower case
            for $32 million, in a case where the insurer exaggerated how
            sick patients were.\3\
    ---------------------------------------------------------------------------
        \3\ http://www.npr.org/sections/health-shots/2017/05/31/530868367/
    medicare-advantage-insurers-settle-whistleblower-suit-for-32-million

       Two top executives of AIG settled an accounting fraud case,
            agreeing to return almost $10 million in salary.\4\
    ---------------------------------------------------------------------------
        \4\ https://www.nytimes.com/2017/02/10/business/dealbook/former-
    aig-executives-reach-settlement-in-accounting-fraud-case.html?_r=0

       In just the last few years, insurers have begun to raise
            rates on people who do not shop around, a process called
            ``price optimization.'' In this scam, insurers use information
            from non-driving related sources such as third-party consumer
            databases, grocery store shopping records, and social media
            analysis to determine if a person does or does not shop when
            prices go up. They use this information to raise the rate above
            the actuarially sound price on the non-shopping consumer. This
            is illegal in every state, since state laws require prices to
            be based on driving risk, not shopping tendency. Since CFA
            raised the issue three years ago, 20 states have banned the
            practice, but we believe this fraudulent pricing system is
    ---------------------------------------------------------------------------
            still being deployed or introduced in several states.

        A quick search over the last month or so of headlines from
    Insurance Business Magazine identifies some other examples of the
    consistent drumbeat of insurer/agent fraud against consumers:

       A San Diego insurance agent was charged in connection with
            allegedly scamming five people--three of them seniors--out of a
            total of more than $1.1 million.\5\ (July 24, 2017)
    ---------------------------------------------------------------------------
        \5\ http://www.insurancebusinessmag.com/us/news/breaking-news/
    insurance-agent-charged-in-1-1-million-scam-73861.aspx

       A Connecticut man presented himself as an insurance agent
            after the state pulled his license and is headed to prison for
            nearly four years. The insurance agent pleaded guilty to wire
            fraud, according to the San Francisco Chronicle. Prosecutors
            say he scammed people out of more than $874,000.\6\ (July 21,
            2017)
    ---------------------------------------------------------------------------
        \6\ http://www.insurancebusinessmag.com/us/news/breaking-news/fake-
    insurance-agent-gets-nearly-four-years-73739.aspx

       Farmers Insurance Exchange will refund $315,000 to more than
            1,600 Minnesota drivers, after authorities found that the firm
            wrongfully charged the drivers with higher auto insurance
            rates. The state's Commerce Department said the insurer charged
            drivers with higher rates solely because they were home renters
            rather than homeowners. Minnesota law prohibits firms from
            setting auto insurance rates or benefits, or denying coverage,
            based on a driver's status as a residential tenant.\7\ (July
            19, 2017)
    ---------------------------------------------------------------------------
        \7\ http://www.insurancebusinessmag.com/us/news/breaking-news/
    farmers-insurance-exchange-must-make-refunds-to-1600-drivers-73452.aspx

       A U.S. District Court has approved the $32.5 million
            settlement of a racial discrimination case against MetLife
            filed by a class of African-American former MetLife financial
            services representatives. The former employees filed the case
            against the insurer in 2015. They accused the firm of
            maintaining ``a racially biased corporate culture and
            stereotypical views about the skills, abilities, and potential
            of African-Americans that affect personnel,'' a court docket
            said.\8\ (July 12, 2017)
    ---------------------------------------------------------------------------
        \8\ http://www.insurancebusinessmag.com/us/news/breaking-news/
    judge-approves-metlifes-32-5-million-race-bias-class-action-settlement-
    72878.aspx

       A health care system suing Chubb paid itself ``excessive''
            amounts from employee retirement programs and ``unjustly
            enriched itself,'' the insurer claims.\9\ (July 7, 2017)
    ---------------------------------------------------------------------------
        \9\ http://www.insurancebusinessmag.com/us/news/breaking-news/
    insurer-claims-health-system-unjustly-enriched-itself-72483.aspx

       A Colorado insurance broker was sentenced to 12 years in
            state prison on Monday after he pleaded guilty to several
            counts of forgery, insurance fraud, and theft. The insurance
            broker pocketed some $130,000 in workers' compensation premiums
            that he wrote while his license was revoked. Previously, this
            broker had been sentenced to two years of probation and had his
            license revoked in 2014 after pleading guilty to forgery in
            what was described as a similar case.\10\ (June 28, 2017)
    ---------------------------------------------------------------------------
        \10\ http://www.insurancebusinessmag.com/us/news/workers-comp/
    insurance-broker-gets-long-custodial-sentence-after-fraud-71698.aspx

       A recommended Federal class-action lawsuit against Allstate
            has been approved by the Pennsylvania Supreme Court. The class-
            action is in relation to Allstate's policy that mandates
            claimants undergo medical exams by a doctor of the carrier's
            preference before they can receive benefits.\11\ (June 21,
            2017)
    ---------------------------------------------------------------------------
        \11\ (http://www.insurancebusinessmag.com/us/news/breaking-news/
    allstate-hit-by-another-potential-class-action-71111.aspx

       The owners of a California insurance agency have been
            indicted by a Federal grand jury for allegedly sending more
            than a million pieces of mail without paying the postage.\12\
            (June 13, 2017)
    ---------------------------------------------------------------------------
        \12\ http://www.insurancebusinessmag.com/us/news/breaking-news/
    insurance-agents-indicted-for-300000-mail-fraud-70249.aspx
    ---------------------------------------------------------------------------
    A. Auto Insurance Pricing
        CFA has undertaken a series of reports on the plight of good-
    driving, lower-income Americans. These consumers are unable to afford
    state-required auto insurance due to the use of unfair rating factors
    related to income. Our research has identified that good-driving low-
    income people often pay more for auto insurance than wealthier people
    with accidents and tickets. It is, unquestionably, a defrauding of
    American consumers when insurers charge safe drivers more than unsafe
    drivers for the same coverage.
        CFA's research addresses several different aspects of auto
    insurance rates, premiums and the market, but all point to a few key
    findings:

       The cost of state-mandated basic liability insurance is
            higher than many lower-income Americans can afford and the
            number of uninsured citizens in this category is higher than
            the national average as a result;

       Insurers use a variety of socio-economic rating factors
            unrelated to driving that push auto premiums up for lower-
            income Americans despite good driving records; and

       Stronger state consumer protections related to auto
            insurance rate setting leads to greater access to and more
            stability in auto insurance markets.

        A description of each of the reports that CFA has issued since 2012
    is available in the attached appendix. This is followed by a summary of
    the key recommendations from the reports. Our research documents that
    states require good-driving, lower-income Americans to purchase auto
    insurance to drive and harshly penalize them for driving without that
    insurance. But most states do not regulate the use of factors that
    raise rates on widows, renters, low-wage workers, people with less
    education and other factors that adversely discriminate against the
    poor.
    B. Actions Against Insurers for Bad Faith
        There are hundreds of legal actions against insurers for bad faith.
    Consumers pay money for premiums, often for many years, prior to an
    event occurring or a claim being filed. Consumers believe that insurers
    will do right by them if they file a claim. Once a claim is filed, the
    insurer owes the consumer a duty of utmost good faith in handling the
    claim. If the insurer improperly denies or delays payment of the claim,
    it is possible that the insurer has not acted in good faith. It is
    likely that the number of times consumers are defrauded by insurer bad
    faith is orders of magnitude larger than the number of times insurers
    are sued for this kind of fraud. For many consumers, this fraud comes
    in the form of an insurer's low-ball offer--on a total loss claim on a
    car insurance policy, for example--that may short the consumer by
    $1,500, which is devastating to a consumer but not a viable legal
    action against the insurance company either because the cost of
    litigation is too high or because many states prohibit such suits.
    C. Fraud Against Consumers by Other Entities Involved in the Insurance
            Market
    1. Storm Chasers
        CFA warns consumers about ``storm chasers,'' which are repair firms
    that come in after a storm and offer to repair structures. Often, they
    have no local connections, may not have proper insurance for their
    workers, and do subpar repairs. They have opportunities to do work,
    particularly after catastrophic weather events, because there are so
    many repairs that need to be done in a relatively short time. Insurers
    want to settle claims from storms as quickly as possible. However,
    insurers should work with reliable contractors to make sure that there
    are sufficient workers and supplies in the catastrophe area as repairs
    must be done in a timely way. State government action could assist in
    making sure that there are sufficient resources available to complete
    repairs promptly.
        As bad as storm chasers can be, those that do acceptable work do
    help to get necessary work completed. The market demands an increase of
    contractors after a storm, and there would be value in helping
    communities identify those who will not cut corners in the repairs and
    can meet standards of quality that will equal the promises contained in
    the insurance contract. Consumers would be served by better tools to
    help distinguish between the fraudulent storm chasers and those
    contractors who arrive in the wake of a catastrophe not just looking
    for a quick buck but to provide a quality service.
        Regardless of what additional resources might be made available in
    the future, CFA always advises consumers to make sure that the people
    they contract with for repairs after a storm are (1) capable of doing
    the work well, (2) properly credentialed, and (3) have references. We
    urge consumers to check with their insurance company if they have
    questions about a contractor who approaches them.
    2. Opioids
        Insurers have the data to monitor opioid prescription levels and
    should be a force for good in finding ways to tackle this mounting
    problem. We encourage insurers' full cooperation in working with
    government and others seeking solutions. However, insurers can also be
    part of the problem in a number of ways. First and most importantly,
    some insurers will not pay for alternatives to opioids such as steroid
    injections, physical therapy and nerve blocks.\13\ Second, insurers try
    to do the right thing by limiting the amount of opioids to a person but
    sometimes are not sophisticated in doing so, since some patients have
    been on the specific drug for a long time and need more of the drug to
    get the necessary relief. In these cases, the patients often turn to
    street drugs, exacerbating the problem.
    ---------------------------------------------------------------------------
        \13\ http://addictionblog.org/treatment/health-insurance-and-its-
    influence-on-the-opioid-epidemic/
    ---------------------------------------------------------------------------
        We could list many other examples of frauds against consumers by
    insurers. The point that CFA wants to make clear is that fraud against
    consumers by insurers needs Congressional attention.
    II. Fraud Against the Insurance Industry by Consumers
        Fraud against the insurance industry by consumers is a serious
    issue. There are two types of such insurance fraud: hard fraud and soft
    fraud.
        Hard fraud entails someone deliberately planning or inventing a
    loss, such as a collision, auto theft, or fire that is covered by their
    insurance policy in order to receive a claim payment. Criminal rings
    are sometimes involved in hard fraud schemes that can steal millions of
    dollars. The data on hard fraud are fairly reliable, since such data
    can be collected from criminal case records.\14\
    ---------------------------------------------------------------------------
        \14\ http://www.insurance.ca.gov/0400-news/0200-studies-reports/
    0700-commissioner-report/upload/AnnualReport2013.pdf, at page 39.
    ---------------------------------------------------------------------------
        Soft fraud consists of policyholders exaggerating otherwise
    legitimate claims. For example, when involved in an automotive
    collision an insured person might claim more damage than actually
    occurred.
        The statistics on the extent of such soft fraud are very squishy
    and the insurers seem to have some incentives to over-report it.
    Congress should be very cautious about claims of soft fraud exceeding
    more than a few percent of premium dollars.
        Some consumers believe that it is acceptable to increase insurance
    claims to make up for deductibles or because they believe their insurer
    has been unfair to them in some way. The Coalition Against Insurance
    Fraud found these disturbing attitudes among consumers;\15\
    ---------------------------------------------------------------------------
        \15\ http://www.insurancefraud.org/statistics.htm

       24 percent say it's acceptable to pad an insurance claim to
            make up for the deductible--that's a drop since 33 percent said
    ---------------------------------------------------------------------------
            it was acceptable in 2002;

       18 percent believe it's acceptable to pad a claim to make up
            for premiums paid in the past;

       Younger males were much more likely to condone claim
            padding, and 23 percent of 18 to 34-year-old males say it's
            alright to increase claims to make up for earlier premiums.
            This compares with 5 percent of older males and 8 percent of
            females of the same age;

       More than half (55 percent) of U.S. consumers say poor
            service from an insurance company is more likely to cause a
            person to defraud that insurer;

       More than three-quarters (76 percent) say they're more
            likely commit insurance fraud during an economic downturn than
            during normal times (up from 66 percent in 2003)

        A specific consumer's likelihood to commit soft fraud appears to be
    impacted by how the consumer sees the insurance industry's treatment of
    them to be. The public's perception of insurers is very negative. The
    2015 Harris Poll on consumer attitudes towards various industries rates
    Insurance as 35 percent positive (only Financial Services, Tobacco and
    Government rank lower).\16\ If the industry can repair its image, that
    could positively impact the degree of fraud against it.
    ---------------------------------------------------------------------------
        \16\ https://skift.com/wp-content/uploads/2015/02/2015-RQ-Media-
    Release-Report_020415.pdf at page 13.
    ---------------------------------------------------------------------------
        CFA supports insurer attempts to control fraud, including the
    creation of Special Investigative Units (SIUs) to look into suspicious
    claims. However, SIUs and other attempts to control fraud must be
    reasonable. There are examples of such investigations going on for
    extensive periods of time while, for example, people are not able to
    return to their home because of the investigation into alleged arson
    until the damage is repaired. Frequently, these delays go on for an
    excessive period only to conclude with the finding that there was no
    fraud. Steps must be taken to assure that insurer fraud investigations
    are completed in a timely way so innocent people are not left hanging,
    for example, without a place to live for month after month.
    III. Conclusion
        In conclusion, CFA is concerned about insurance fraud; we are aware
    of numerous types of fraudulent activity by a few insurers and by a few
    consumers using the insurance market, both of which harm the vast
    majority of consumers who are honest and ethical. We would welcome
    Congress undertaking research to document and to minimize these types
    of harmful actions that put consumers at great economic disadvantage,
    so long as the effort is deployed in such a way that considers the
    whole range of frauds being committed in the insurance market, as we
    have outlined here. We support efforts to control these types of fraud,
    with the important warning that the prospect of fraud should not be
    used as a device to justify an unscrupulous attack on innocent
    consumers seeking claims payments.
                                    Appendix
             Consumer Federation of America Auto Insurance Research
    3 Major Auto Insurers Usually Charge Higher Prices to Good Drivers
            Previously Insured by Non-Standard Insurers Consumer Federation
            of
            America (2017)
        Auto insurance giants Allstate, Farmers, and American Family often
    charge nine to fifteen percent higher premiums to good drivers
    previously insured by smaller, ``non -standard'' insurers than those
    who had coverage from State Farm or other primary competitors. Allstate
    charged 15 percent ($235) more on average to good drivers previously
    covered by non-standard auto insurers such as Safe Auto Insurance and
    Equity Insurance Co. than if the y had been previously insured by State
    Farm. Farmers charged nine percent ($260) more on average to customers
    coming from non-standard companies, including Titan Insurance and
    Access Insurance Company, than those hailing from State Farm policies.
    American Family Insurance, the Nation's ninth largest auto insurer,
    charged nine percent ($166) more on average to customers previously
    with non-standard carriers, such as Direct General and Safeway
    Insurance.
    Major Insurance Companies Raise Premiums After Not-At-Fault Accidents
            Consumer Federation of America (2017)
        Safe drivers who are in accidents caused by others often see auto
    insurance rate hikes. The research analyzed premium quotes in 10 cities
    from five of the Nation's largest auto insurers. Among the cities
    tested, drivers in New York City and Baltimore pay out the most for an
    accident where the driver did nothing wrong, and customers in Chicago
    and Kansas City also face average increases of 10 percent or more when
    another driver crashes into them. CFA's research over recent years has
    consistently found that good drivers with certain socio--economic
    characteristics that suggest lower incomes generally pay more for auto
    insurance than higher-income drivers with the same driving record. This
    pattern holds when it comes to penalizing drivers for accidents in
    which they were not at fault. Higher-income drivers paid $78 more on
    average after a not-at-fault accident, while moderate-income drivers
    paid $208 more on average after a not-at-fault accident.
    Major Insurers Charge Moderate-Income Customers With Perfect Driving
            Records More Than High-Income Customers With Recent Accidents
            Consumer Federation of America (2016)
        Auto insurance prices are often more closely aligned with personal
    economic characteristics than with drivers' accident and ticket
    history. Testing premiums offered by the Nation's five largest insurers
    in ten U.S. cities for drivers with different socio-economic
    characteristics and different driving records, CFA found surprising
    results, including: upper-income drivers with DUIs often pay less than
    good drivers of modest means with no accidents or tickets on their
    driving record; moderate-income drivers with perfect records pay more
    than upper-income drivers who caused an accident in which someone was
    injured; progressive and GEICO consistently charge upper-income bad
    drivers less than moderate-income good drivers; moderate-income good
    drivers often pay more than upper-income drivers with multiple points
    on their record.
    Major Auto Insurers Raise Rates Based on Economic Factors Consumer
            Federation of America (2016)
        In most states auto insurance premiums are driven in large measure
    by economic factors that are unrelated to driving safety, a practice
    that most Americans consider unfair. Among the most common of the
    individual economic and socio-economic characteristics used by auto
    insurers are motorists' level of education, occupation, homeownership
    status, prior purchase of insurance, and marital status. Because each
    of these factors are associated with an individual's economic status
    and because insurers consistently use each factor to push premiums up
    for drivers of lesser economic means, the combined effect of insurers'
    use of these factors can result in considerably higher prices for low--
    and moderate-income Americans, leaving many overburdened by unfairly
    high premiums and others unable to afford insurance at all.
    Good Drivers Pay More for Basic Auto Insurance If They Rent Rather Than
            Own Their Home Consumer Federation of America (2016)
        Several major auto insurance carriers hike rates on good drivers
    who rent their home rather than own it. CFA tested the premiums charged
    by seven large insurers to a good driver in ten cities. For each test
    we only changed the driver's homeownership status and found that
    renters were charged seven percent more on average--$112 per year--for
    a minimum limits policy than insurers charged drivers who own their
    homes, everything else being equal.
    Price of Mandatory Auto Insurance in Predominantly African-American
            Communities Consumer Federation of America (2015)
        CFA released research comparing auto insurance prices in
    predominantly African-American Communities with prices paid in
    predominantly white communities. Nationwide, in communities where more
    than three quarters of the residents are African American, premiums
    average 71 percent higher than in those with populations that are less
    than one quarter African American after adjusting for density and
    income. In Baltimore, New York, DC, Detroit, Boston and other cities,
    the disparity of premiums is more than 50 percent between predominantly
    African American and predominantly white ZIP codes.
    New Research Shows That Most Major Auto Insurers Vary Prices
            Considerably Depending on Marital Status Consumer Federation of
            America (2015)
        CFA released research on how insurers utilize marital status in
    their pricing of auto insurance policies. CFA questions the fairness
    and relation to risk of this pricing by most major insurers,
    particularly their practice of hiking rates on women whose husbands die
    by 20 percent on average, the ``widow penalty.''
    Auto Insurers Fail to Reward Low Mileage Drivers Consumer Federation of
            America (2015)
        CFA released research showing that large auto insurers frequently
    fail to reward drivers with low mileage despite a strong relationship
    between this mileage and insurance claims. The study found that three
    of the five largest insurers often give low-mileage drivers no break at
    all. In a 2012 nationwide survey conducted by ORC International for
    CFA, 61 percent of respondents said that it was fair for auto insurers
    to use mileage in pricing auto insurance.
    Large Auto Insurers Charge High Prices, to a Typical Lower-Income Safe
            Driver with Car Financing, for Minimal Coverage Consumer
            Federation of America (2014)
        CFA found that annual auto insurance premiums are especially high
    for the estimated eight million low-and moderate-income drivers who
    finance their car purchases. These drivers must purchase the
    comprehensive and collision coverage required by auto lenders in
    addition to the liability coverage required by states. In the 15 cities
    CFA surveyed, annual premium quotes were almost always more than $900
    and were usually more than $1,500. In a related national opinion survey
    undertaken by ORC International for CFA, nearly four--fifths of
    respondents (79 percent) said that a fair annual cost for this auto
    insurance coverage was less than $750. One-half (50 percent) said that
    a fair annual cost was less than $500. Respondents were asked what they
    thought was a reasonable annual cost for a ``30-year old woman with a
    modest income and ten years driving experience with no accidents or
    moving violations'' for required liability, collision, and
    comprehensive insurance coverage.
    High Price of Mandatory Auto Insurance for Lower Income Households
            Consumer Federation of America (2014)
        The country's five largest auto insurance companies do not make a
    basic auto insurance policy available to typical safe drivers for less
    than $500 per year in over 2,300 urban and suburban ZIP codes including
    484, or more than a third, of the Nation's lowest-income ZIP codes. In
    the report, CFA analyzed 81,000 premium quotes for State Farm,
    Allstate, Farmers, Progressive, GEICO and each of their affiliates in
    all ZIP codes in 50 large urban regions, which include urban, suburban
    and adjacent rural communities. CFA also reviewed the premium quotes
    from an additional 58 insurance companies--comprising a total of 207
    insurance affiliates including those of the five largest insurers--
    which produced similar results.
        In 24 of the 50 urban regions, there was at least one lower-income
    ZIP code where annual premiums for a minimum limits policy exceeded
    $500 from every major insurer. In nine of these 50 areas--Miami/Ft.
    Lauderdale, Detroit, Minneapolis/St. Paul, Tampa/St. Petersburg,
    Baltimore, Orlando, Jacksonville, Hartford, and New Orleans--prices
    exceeded $500 in all lower-income ZIP codes.
        This report included the finding from a recent national survey that
    more than three-quarters of Americans (76 percent) believe that a
    ``fair annual cost'' for state-mandated insurance for a typical good
    driver with no accidents and no tickets should be less than $500.
    Uninsured Drivers: A Societal Dilemma in Need of a Solution Consumer
            Federation of America (2014)
        This report found that most uninsured drivers in America have low
    incomes and cannot afford to purchase the mandatory minimum liability
    coverage required by their state. The report also revealed that these
    low-income drivers are increasingly adversely impacted by state and
    local government actions, including raising liability requirements
    (driving up premiums), more rigorous enforcement, and stiffer
    penalties. However, there is little difference in uninsured rates
    between those states that penalize uninsured drivers harshly and those
    that do not. The report reviewed penalties for driving without auto
    insurance in every state and found some of these very harsh penalties
    for lower-income Americans who truly cannot afford the required
    insurance:

       Fourteen states allow jail sentences for a first offense.

       Thirty-two states allow for the possibility of license
            suspension for a first offense.

       Thirty-three states have possible fines of $500 or more for
            a first offense.
    CFA Analysis Shows Auto Insurers Charge Higher Rates to Drivers with
            Less Education and Lower-Status Jobs Consumer Federation of
            America (2013)
        Several major auto insurers place a heavy emphasis on their
    customers' occupation and education when setting prices, forcing lesser
    educated, blue collar workers with good driving records to pay
    substantially higher premiums than drivers with more education and
    higher paying jobs. For example:

       GEICO charges a good driver in Seattle 45 percent more if
            she is a factory worker with a high school degree than if she
            is a plant superintendent with a bachelor degree;

       Progressive charges the factory worker 33 percent more in
            Baltimore; and

       Liberty Mutual charges the worker 13 percent more in
            Houston.

        The reported also highlighted a national survey that found that
    about two-thirds of Americans believe that it is unfair to use
    education and occupation when pricing insurance policies.
    What Works: A Review of Auto Insurance Rate Regulation in America and
            How Best Practices Save Billions of Dollars Consumer Federation
            of
            America (2013)
        Over the past quarter century, auto insurance expenditures in
    America have increased by 43 percent on average and by as much as 108
    percent. These increases occurred despite substantial gains in
    automobile safety and the arrival of several new players in the
    insurance markets. Only in California, where a 1988 ballot initiative
    transformed oversight of the industry and curtailed some of its most
    anti-consumer practices, did insurance prices fall during the period,
    resulting in more than $4 billion in annual savings for California
    drivers. This report used NAIC data to assess the impact of different
    types of insurance market oversight (prior approval, file and use, use
    and file, flex rating, and deregulation) on rates, industry
    profitability, and competition. It also provided a detailed analysis of
    California's experience with the Nation's most consumer protective
    rules governing the auto insurance market.
    Largest Auto Insurers Frequently Charge Higher Premiums To Safe
            Drivers Than To Those Responsible For Accidents Consumer
            Federation of America (2013)
        CFA analyzed premium quotes from the five largest auto insurers in
    twelve major cities and found that two-thirds of the time, insurers
    would charge a working class driver with a 45 day lapse in coverage and
    a perfect driving record more than companies charged an executive with
    no lapse in coverage but a recent at-fault accident on their record. In
    60 percent of the tests, the lower-income good driver was charged at
    least 25 percent more than the higher-income driver who had caused an
    accident.
    Use of Credit Scores by Auto Insurers Adversely Impacts Low- and
            Moderate-Income Drivers Consumer Federation of America (2013)
        Holding all other factors constant, the two largest auto insurers,
    State Farm and Allstate, charge moderate-income drivers with poor
    credit scores much higher prices than drivers with excellent scores.
    Using data purchased from a third party vendor of insurance rate
    information, this report showed that State Farm increased rates for the
    low credit score driver an average of 127 percent over the high credit
    score customer and Allstate raised rates by 39 percent, costing State
    Farm and Allstate customers an average of more than $700 and $350,
    respectively, based solely on credit scores.
        The report also pointed to a recent national survey conducted for
    CFA that found that, by a greater than two to one ratio, Americans
    reject insurer use of credit scores in their pricing of auto insurance
    policies.
    Auto Insurers Charge High and Variable Rate for Minimum Coverage to
            Good Drivers from Moderate-Income Areas Consumer Federation of
            America (2012)
        This report used extensive website testing to show that good
    drivers--those with no accidents or moving violations--who live in
    moderate-income areas in 15 cities were being quoted high auto
    insurance rates by major insurers for the minimum liability coverage
    required by those states. Over half (56 percent) of the rate quotes to
    two typical moderate -income drivers were over $1,000, and nearly one-
    third of the quotes (32 percent) exceeded $1,500.
        The report also presents findings from a national survey that shows
    that lower -income families report knowing people who drive without
    insurance at a much higher rate than higher-income drivers. Further,
    nearly 80 percent of drivers agreed that ``they [the uninsured drivers]
    do so because they need a car but can't afford the insurance.''
    Lower-income Households and the Auto Insurance Marketplace: Challenges
            and Opportunities Consumer Federation of America (2012)
        Access to an automobile plays a critical role in creating economic
    opportunities for lower-income Americans and the affordability of auto
    insurance plays a key role in this access. This report provides an
    overview of the auto insurance market with a detailed discussion of
    low--and moderate-income (LMI) households' participation in the auto
    insurance market. The report summarizes pricing information collected
    by CFA as well as data related to availability, residual markets and
    uninsured motorists.
        At the heart of this report, which was the first in the series of
    reports outlined above, is t he finding that for millions of lower-
    income Americans auto insurance is unaffordable and inaccessible
    despite their unblemished driving records. High priced auto insurance,
    which often leads LMI drivers to choose between giving up their cars or
    driving un insured, creates serious economic hardships, and the issue
    must be addressed by policymakers and regulators. The report concludes
    with a summary of the issues, obstacles and needs facing LMI customers
    and policy suggestions for addressing them.\1\
    ---------------------------------------------------------------------------
        \1\ Links to the series with thumbnail descriptions of each report
    ac be accessed at: http://consumerfed.org/cfa-studies-on-the-plight-of-
    low-and-moderate-income-good-drivers-in-affording-state-required-auto-
    insurance./

        Senator Moran. Thank you very much.
        Let me just ask a few general questions, and then I'll turn
    to the Ranking Member.
        Maybe it's with you, Mr. Doak. Our states share similar
    kind of casualty opportunities for insurance claims to be paid
    in tornadoes, windstorm, hail, and most recently, fires.
        Mr. Doak. Yes, sir.
        Senator Moran. Where is the circumstance in which that
    fraud is likely to occur? Somebody has a hailstorm or there's a
    tornado that goes through town, what are the places that are
    most significant opportunities for fraud?
        Mr. Doak. Sure. And thank you, Senator. Commissioner Selzer
    and I have talked about this, and he has actually attended the
    National Tornado Summit, which we host in Oklahoma City with
    several other of our colleagues from around the United States
    to talk specifically about natural catastrophes and disasters,
    and what follows after that is unfortunately there is a high
    propensity for fraud. And, unfortunately, most of the folks
    that are taken advantage of first in those natural catastrophe
    events, whether it be Sandy, Katrina, some of those events, are
    seniors, who we want to protect and make sure that they're well
    educated.
        But we also see some of the basic things as after that size
    scalable catastrophe example, the Moore tornado not too long
    ago, we had over 80,000 claims in a very concentrated area. The
    anti-fraud units worked, and we actually had the anti-fraud
    unit from the State of North Carolina came and joined us
    because of the very specific job that they do in deterrence.
    You have folks that go through these neighborhoods that really
    prey upon unsuspecting consumers that have never had this size
    of a catastrophe. So you have folks that are asking them,
    ``We'll tarp your roofs,'' and then they'll put liens on their
    property, and they'll find out later through the claims process
    that there is a lien on the property. You have unscrupulous
    contractors that take advantage of folks relative to roof
    damage and hail. Whether it's a complete loss or partial loss,
    a lot of times those find out that they are full losses.
        So there are many things that happen there. But consumers,
    at that particular point in time, for those large-scale
    losses--hail, tornado--we just recently showed you the picture
    of the one in Elk City, 100 homes, but the contractors that
    descend on the area, we try to encourage them, Senator, to use
    local reputable contractors from their community where they
    know who they are, but when folks come in across state lines,
    many times that's where you see the fraudulent activity
    happening.
        Senator Moran. A disreputable contractor, somebody who
    enters into a contract with a homeowner following a natural
    disaster, how does that become insurance fraud as compared to
    fraud?
        Mr. Doak. Right. Well, when it deals with the insurance
    policy, when they're actually doing work and then billing it
    back to the insurance company for some type of fraudulent
    activity, that's where it crosses the line into the insurance
    issues no matter what state they're in, is if they're getting
    payment from the insurance companies, that's where the fraud is
    happening. And that can even be a first dollar because if
    they've got a deductible to meet, many times consumers are
    using that out-of-pocket expense to tarp a roof, to have any
    type of activity done on their home. In a major catastrophe,
    they're keeping those receipts because all of those are applied
    toward that total insurance claim. So hopefully that answers
    your question.
        But one of the things in Moore, Oklahoma, that really is I
    think a best practice for the country is the registration of
    contractors that come into an area. And we believe that that
    should be done at the local community level where there is
    recourse. If someone comes in from out of state, they register
    at the local municipality, which it's very, very economical,
    but they show that they've got liability insurance and there's
    recourse if their workers are hurt or injured on the insured's
    property, but there is some recourse to find them, they're just
    not flight-by-nights.
        So there are some things that we've learned from other
    communities around the United States that really have been best
    practices.
        Senator Moran. Perhaps for all of the panelists, Ms.
    Weintraub raises the topic of fraud committed by the insurance
    company. I think perhaps stereotypically we think of a consumer
    or a third party as the perpetrator of fraud. Do you see what
    Ms. Weintraub has described? And do you take that seriously?
    And are there efforts within the industry to make sure that the
    insurance companies and their employees, their agents, behave
    in a non-criminal manner, in an ethical way?
        Mr. Doak. Absolutely. If that's directed toward me, we
    absolutely do. We've got the insurance commissioners, whenever
    there are complaints that are levied, as you've outlined, the
    companies, the insurance commissioners, and the departments
    take those very, very seriously. Insurance fraud by companies,
    if there is unfair claims practices, if they're not treating
    people fairly, if they are using some type of practice behind
    the scenes, as she mentioned, that's something that state
    regulators take very, very seriously. Other colleagues might
    have some comments, but that's very high on our radar for all
    state departments around the country. When we hear of those
    things, we investigate those and follow up on them in a pretty
    timely manner.
        Senator Moran. Is there a way to estimate--to other
    panelists, is there a way to estimate the cost to consumers of
    that kind of fraud--fraud committed by companies and their
    agents?
        Mr. Kevelighan. Maybe I can--as an industry representative,
    maybe I can speak to that. And I've heard a term used both by
    Ranking Member Blumenthal as well as Ms. Weintraub, and it was
    ``vast majority,'' and I think that's something to take into
    consideration. We all know that it only takes one instance to
    damage reputation, but the vast majority of insurers are
    working very closely with their regulators. All policies have
    to be--all policy terms, conditions have to be approved by the
    regulatory community and their state regulators.
        So there's a very direct relationship here with the
    regulatory community. The insurers want to get this right. They
    want to make sure they're providing the right protection. And
    there are success stories. So if we look recently at Sandy, in
    the first 6 months, we had over 90 percent of the claims paid.
    Now, we can look at specific instances where we had troubles,
    and I think if you look at any industry, you're going to find
    those things. But the vast majority of this industry is
    dedicated to serving the consumer and to make sure that it's
    rebuilding their lives.
        Senator Moran. Anyone else? Mr. Jay?
        Mr. Jay. Yes, Mr. Chairman, I think that's an excellent
    question. And following up on what Ms. Weintraub said as far as
    the industry doesn't like the few bad apples that are out
    there, but a lot of these scams are perpetrated by rogue
    insurance adjusters and especially rogue insurance agents. And
    at one time, insurers really didn't do a very good job in
    policing their own employees on this. I think that's changed
    today because of pressure from regulatory bodies, but also
    because I think it's in the insurers' best interest, and they
    do want to make sure the consumers are protected and that their
    own reputations are protected.
        So in those areas, I think it is getting better, but some
    of these other instances that you're taking a look at, I think
    you also have to distinguish between what is a bad practice on
    behalf of an insurance company that's harming consumers and
    what may be deemed criminal or civil fraud as defined in the
    state statutes. And I think we need remedies for both, but some
    may be abuse and some may be outright fraud.
        Senator Moran. Yes. I can see a difference between the
    frustration that comes with a slow payment for the indemnity,
    the check, or the bureaucracy that comes with filing the claim.
    That's different, I think, than outright fraud, trying to deny
    the consumer what they're due.
        Senator Blumenthal.
        Senator Blumenthal. Thank you very much, Mr. Chairman.
        And again welcome to all of you.
        I want to talk about an issue that is of grave concern to
    Connecticut and possibly all of the Northeast and the country,
    and it goes by name of pyrrhotite. Few in this room would know
    how to spell it. And not many around the country would know
    about it, but it is well known in Connecticut and in
    Massachusetts and other parts of the Northeast, and it is an
    example of the kind of insurance practice that may be
    tantamount to fraud, certainly involve deceptive and misleading
    practices, and unfortunately has cost hundreds of Connecticut
    homeowners possibly their life saving.
        Hundreds of homes in Connecticut, mostly working and middle
    class families, are reported to have cracking or crumbling
    foundations. Those homes are quickly declining in value. Some
    have approached the point of worthlessness. The only known
    solution is to replace the entire foundation at costs exceeding
    $150,000 each. The fear is that this condition could spread to
    thousands of other homes, whose foundations were also poured
    using concrete aggregate from a particular quarry that contains
    high levels of a naturally occurring mineral called pyrrhotite.
        Insurers have been unwilling, they have been unwilling, to
    provide desperately needed assistance to these homeowners.
    Instead of alerting their customers about the risks once the
    insurer became aware of them, they surreptitiously changed the
    policies, they updated the policies, to strictly define
    coverage of, quote, collapse, end quote, to only, quote, abrupt
    collapse. And they added foundations to the list of policy
    exclusion.
        They never properly told their customers what they were
    doing. They never told them the reason they were doing it. They
    never adequately notified them so the homeowners could take
    steps to protect themselves either by rebuilding or taking
    construction precautions about the foundation or taking new
    policies that cover this problem. Insurers clearly knew there
    was a problem with crumbling foundations before homeowners
    knew, and they immediately sought to shield their liability, in
    other words, protect themselves, rather than protect their
    customers.
        I have highlighted the responsibility of insurers to do
    more. Some have offered, but most have refused to step up and
    honor their obligation to these homeowners. And I am out of
    patience. There have been lawsuits. So far, I have declined to
    enter them, but I think I and my colleagues and others are at
    the point of wanting more action and more compensation for
    these homeowners whose life savings are at risk, whose homes
    are not only crumbling, but whose financial well-being are
    crumbling as well.
        So, Mr. Kevelighan, when insurers become aware of a
    problem, as they did here, don't they have an obligation to
    notify and inform their consumers, as insurers failed to do
    here, that they are literally changing their policies, the
    wording of the policies, that will deprive them of adequate
    compensation for this kind of policy problem?
        Mr. Kevelighan. Well, I know this issue, and it is an
    unfortunate one, and we've paid very close attention to it at
    the Insurance Information Institute, and we understand people
    are very troubled financially as a result of this. It's
    something that happened as a result of construction and
    manufacturing that occurred 15 or so years ago. And as a
    homeowner's policy, it is standard, and we've seen this in
    other states before, where we have defective materials. Those
    are--it's a standard exclusion in an insurance policy, so it's
    not specific to Connecticut.
        Senator Blumenthal. So this issue is potentially
    widespread.
        Mr. Kevelighan. I don't know--we only know of this
    particular issue in Connecticut, and I----
        Senator Blumenthal. Well, when I say the issue, I don't
    mean pyrrhotite, I mean changing policies so as to, in effect,
    exclude a problem that the insurers know is looming that will
    in effect rob homeowners of their life savings. That is the
    issue, not pyrrhotite, it's a larger issue, it's the practice
    among insurers of changing policies. And you're telling me that
    this kind of, in your words, issue, in my words, potential
    fraud, is wider than just Connecticut.
        Mr. Kevelighan. I should clarify. The exclusion of
    defective construction materials is a standard exclusion in a
    homeowner's policy.
        Now, back to what we were talking about earlier about the
    regulation of insurance. All policies, any changes, are
    approved by the regulator. We work very closely with our
    regulators to make sure that they understand what changes are
    made. And as far as I understand in the State of Connecticut,
    the insurance commissioner has stood by what the changes were.
        Now, that doesn't exclude the fact that this is an
    unfortunate situation. And I know Governor Malloy has also
    asked FEMA for assistance, which has been denied. I understand
    that something needs to--everybody wants there to be a
    solution, but the solution and whether or not it was something
    intentional from the insurance companies, I'm not sure. Again,
    this is a standard exclusion.
        Senator Blumenthal. Isn't this precisely the reason why
    people buy insurance, homeowner's insurance specifically?
        Mr. Kevelighan. Everybody buys insurance in order to cover
    their risks. Now, what we do at the I.I.I. is to make sure that
    people understand how that insurance works, because there are
    things that need to happen in terms of standard exclusions for
    defective construction materials. That is not a homeowner
    insurance policy issue. That may be a manufacturer construction
    issue, but it's not one that falls to the personal homeowner
    insurance policy.
        Senator Blumenthal. I'm going to ask Mr. Doak, doesn't this
    situation make your blood boil as an insurance commissioner?
        Mr. Doak. Well, Senator, it's unfortunate. We have similar
    issues in my state as well. We had a 4.4 earthquake last night
    at 9:58 in Edmond, Oklahoma. We have Oklahomans whose
    foundations are having particular issues relative to seismic
    activity. However, with earthquake insurance, much like the
    policy that you're talking about, I do agree with Mr.
    Kevelighan, that this, to me personally, is more of a
    commercial risk exposure due to the manufacturer or the quarry
    that was used, going back to the source, much like there are
    cases in Oklahoma are----
        Senator Blumenthal. I just want to make sure you
    understand, Mr. Doak, what happened here, and I'll analogize it
    to the earthquake situation. It is as though the insurers in
    your State of Oklahoma figured out, ``Oh, we have earthquakes
    in Oklahoma, so we're going to change these policies, because
    this could mean a lot of losses for us, to exclude earthquakes,
    but we are not going to properly inform consumers.'' So they're
    going to wake up today, as many of your fellow Oklahomans did,
    with damage from earthquakes, and go to their policy, and the
    insurers are going to tell them, ``Oh, we changed that policy.
    It's only earthquakes in April in leap years.'' That's the
    equivalent of what happened here. It's the lack of proper
    notification.
        Mr. Doak. Exactly. And this is what I----
        Senator Blumenthal. And as an insurance commissioner, and I
    would say this to our insurance commissioner, the insurers have
    an obligation to do better----
        Mr. Doak. No question----
        Senator Blumenthal.--and I think everybody on this panel
    agrees.
        Mr. Doak. No question. The disclosures whenever a product
    or a contract is changed, those disclosures, the clients, the
    consumers, should be educated on that. It's unfortunate,
    though, through the National Association of Insurance
    Commissioners, we have the Consumer Board of Trustees, and one
    of the challenging efforts that we have on consumer education
    is most consumers never read their policies before there is
    ever a claim, and when they get these endorsements or
    disclosures in the mail where some of the policies are changing
    based upon the terms and conditions and regulatory authority,
    some of these are changing, but many of them are not read.
        But if the clients, if the folks, are not getting the
    proper disclosures, I agree with you. I think we're all in
    agreement there.
        Senator Blumenthal. Well, in my view, there is no question
    that the disclosures were totally inadequate, that this conduct
    is unconscionable and indefensible, and that there ought to be
    adequate redress in the courts.
        Mr. Doak. Sure.
        Senator Blumenthal. And I will take action to support the
    efforts in the courts more vigorously than we have before
    because, as I say, I have lost patience with FEMA, with other
    sources of recourse. Some of the insurers have stepped up,
    recognizing their obligation.
        Mr. Doak. Sure.
        Senator Blumenthal. But they rightly insist that all of the
    insurers be part of the solution so it doesn't fall unjustly on
    the ones who want to do the right thing. And so I would call
    upon members of this panel to use your moral suasion with your
    industry so that all of them do the right thing here because I
    think it is a really important example of following moral and
    legal responsibility.
        I'm going yield, and then I hope we'll have a second round
    of questions.
        Senator Moran. The Senator from West Virginia, Senator
    Capito.

                STATEMENT OF HON. SHELLEY MOORE CAPITO,
                    U.S. SENATOR FROM WEST VIRGINIA

        Senator Capito. Thank you. Thank you all. I'm sorry I
    missed your testimony, but I do have questions. It's kind of
    related along the lines of the tornado issue. In our state, it
    happens to be flood, flood catastrophes. I just toured
    Mannington, West Virginia, and I know McMechen, West Virginia,
    had tremendous floods, homeowners really caught unawares, and
    life-altering kinds of things. Unfortunately, we lost two
    folks, but a lot of property damage.
        How do you recommend that, as a public servant who goes in,
    works with the EMS, works with FEMA, works with SBA, to try to
    facilitate those conversations with our constituents who are
    harmed, how do we inform them or make sure that rural Americans
    are not going to be ripe for issues like contractor fraud or
    insurance fraud in the case of really a once-in-a-lifetime sort
    of event? We can--it's for anybody. So, Mr. Doak, I don't know
    if you do anything in Oklahoma.
        Mr. Doak. I think one of the things that the NAIC has done
    very, very well is provide many different types of consumer
    education, consumer tools, at the state level. Many of the
    states like mine have put together PSAs. For instance, we have
    put together a series of PSAs relative to earthquake, wildfire,
    different types, to be able to drive that message at a local
    level to understand the claims process or what's covered or not
    covered. So in a flood process, those same principles apply
    because most folks, when they have that type of catastrophic
    event, have never been through it before.
        Senator Capito. Right, right.
        Mr. Doak. And so it's very, very challenging. And also
    that's where the relationship with the insurers that we
    regulate, we expect them to provide some of that education, and
    through some of their marketing pieces, to be able to
    articulate that. But it is very, very challenging, Senator. And
    I do agree. I have been to too many sites in my state where
    folks have been totally devastated, and they don't understand
    the claims process, no matter what peril caused it.
        Senator Capito. Right. And one of the things I've noticed,
    and I don't know how you avoid this except through education,
    is, for instance, in the flood, your first inclination in your
    home is to get everything out, just to get it out, obviously
    for obvious reasons, health reasons and other reasons, but I
    kept saying you've got to document every single thing, you've
    got to keep all your receipts for your cleaning fluids, all the
    stuff that you--and they sort of give me this blank look like,
    ``Oh, well, that--,'' you know, you're in such a panic in the
    first 48 hours to try to----
        Mr. Doak. Yes, ma'am. One of the things my colleagues may
    agree on, but one of the things that the NAIC has put together,
    and it has been a very effective tool, is a home inventory
    tool. They can go out on the website. We try to encourage that
    in Oklahoma with the number of catastrophes that we have, but
    take pictures of your home, document some of these things.
        Senator Capito. Right, right.
        Mr. Doak. Because a picture is worth a lot of money when it
    comes time to a claims settlement if it's by a flood or
    wildfire or whatever the case is.
        Senator Capito. Right. I think like I said, that's a good
    suggestion.
        I'm going to go to Ms. Weintraub about the opioid issue.
    Our State of West Virginia unfortunately has a high use of--
    we've been hit hard with this opioid abuse issue. We've had
    some pain clinic doctors who were recently indicted on fraud
    charges. ``Pill mills'' is a term I've heard too much in our
    state.
        How do you approach this--I read your testimony--in terms
    of insurance? How can you be helpful or how do you feel that
    the insurance industry can be more helpful in this area?
        Ms. Weintraub. Well, first, this is a huge problem across
    the country and West Virginia.
        Senator Capito. Right.
        Ms. Weintraub. And our hearts go out to all of the people
    and all the families who are suffering as a result of this
    crisis.
        Senator Capito. Right.
        Ms. Weintraub. Some insurers have the data to monitor
    opioid prescription levels, and I think should be, and some
    are, a force for good in finding ways to tackle this mounting
    problem. We encourage insurers' full cooperation in working
    with government and others seeking solutions, but in some ways,
    insurers could also be part of the problem.
        First, some insurers will not pay for alternatives to
    opioids, such as steroid injections or physical therapy and
    nerve blocks. And some insurers try to do the right thing by
    limiting the amount of opioids a person should be able to
    obtain, but sometimes it's not done in the right way, and some
    patients have been on a drug for so long that they then turn to
    the streets and other much, much less safe alternatives. So in
    these occasions, this sort of turning to street drugs
    exacerbates the problem.
        Senator Capito. I have one second left. So does anybody
    have anything to add on that from the insurance perspective?
        Mr. Jay.
        Mr. Jay. Yes, Senator, that's an excellent question. And
    part--almost every state, every state but one, has a drug
    monitoring----
        Senator Capito. Right.
        Mr. Jay.--prescription monitoring program. And some states
    have now recognized that if they share some of this data with
    insurers, both health and property/casualty, who pay
    reimbursement for these drugs, they can find some of these
    schemes much more quickly, not only people who are doctor
    shopping, but also some of the physicians who are prescribing
    and some of the pharmacists who are dispensing these drugs like
    giving candy out on the street, and those are the people we've
    got to shut down first.
        Senator Capito. Right. I would say in terms of the
    insurance industry, our state has a pharmaceutical monitoring
    system, so if that person who is going to the pharmacy is using
    an insurance card, they can and are picked up much more
    readily. There is a certain percentage who are paying cash for
    this. And some states are not required to input that data into
    a pharmaceutical monitoring system. I will say thank you to the
    insurance companies in that they have created systems where
    it's instantaneous, and if the person goes to the next
    pharmacy----
        Mr. Jay. Right.
        Senator Capito.--it can pop up if they're on insurance, but
    if they're paying cash, it's much, much more difficult. But I
    think our states are all working together to figure how to
    close that loophole.
        And for a long time, some of the problems were the states
    weren't cooperating with one another. So you have West
    Virginia, and you can just go right across the river over to
    Ohio or to Kentucky, and you're in the same thing, and that
    problem is getting better. But we've got to have everybody, you
    all at the table, and everybody at the table because this
    problem is--the report that just came out, it's a preliminary
    report from the President, says it's a national emergency, and
    I believe that it is. And thank you all very much.
        Senator Moran. Senator Capito, thank you for persistence in
    regard to opioid abuse in West Virginia and across the country.
        Let me tell my colleagues and to our panelists, we are
    expecting votes sometime around 11. My intention is to conclude
    the hearing when those votes are called. We'll wrap up here and
    we'll not resume. So we probably have 10, 15 minutes left in
    this hearing. Many of the questions that may be asked of you
    will be submitted to you in writing, and we'll request a
    response.
        Let me say to you, Mr. Jay, in regard to your HIPAA
    legislation, I'd be interested--I think I'm speaking to the
    right person who raised this----
        Mr. Jay. Yes.
        Senator Moran. I'd be glad to hear more about that if you
    would let our Committee staff know. It seems a place in which
    there may be a role for Federal legislation.
        And I generally would ask the question of all of you. We're
    having a--we'll continue to have a health care debate. One of
    the things I think that has been missing in this conversation
    for a long time is, What do we do to reduce the underlying cost
    of health care? We spend a lot of time on trying to figure out
    who pays, but we're missing an opportunity that I think could
    be very bipartisan in trying to get rid of the things that
    drive up the cost of health care, and therefore, drive up the
    cost of health insurance.
        And one of the things that comes to me in the testimony
    that I've heard from you is medical insurance fraud, which I
    assume is both committed by the provider, the health care
    provider, as well as the patient or consumer. I'd love to know
    information about--that you all may have in regard to the
    overall cost to the system that that kind of fraud creates. And
    if there is a way we can address it, it could be one of the
    things on a list I have of many that we could address in regard
    to the cost of health care as we continue to try to figure out
    who pays the bills.
        Let me ask, Mr. Jay, I think this is directed at least
    initially to you. There are a couple of things I want--I'm
    going to ask you about your Coalition's 2016 annual report.
    There is also a 2016 study conducted by the Coalition, ``The
    State of Insurance Fraud Technology.'' I'd ask unanimous
    consent that both of those documents be made part of the
    record. Without objection, they will be.
        [The information referred to follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Senator Moran. In that 2016 annual report, it highlights
    the use of technology to combat insurance fraud. Would you
    elaborate on the increasing use of vehicle telematics, drones,
    social media searches, insurance company databases, the
    Internet of Things? The broad jurisdiction of our Commerce
    Committee has a lot to do with these things, and I'd like to
    hear how we can combat fraud and what you're doing.
        Mr. Jay. Absolutely. And as we said before, the use of
    technology and trying to uncover some of the suspect fraud
    schemes has really just exploded over the last few years as new
    technologies come online and as more players in the property/
    casualty industry utilize some of these. And, frankly, I think
    the Internet of Things, everybody is focusing on that right
    now.
        We recently had a case, and we had the prosecutor do a
    briefing at our annual meeting in December, where a gentleman
    was charged with arson with burning down his home. He happened
    to have a pacemaker implanted in his chest. And the prosecutor
    got a court order to force him to sit and so they could take
    the data off his pacemaker, which somewhat demonstrated that
    what he said as far as the arson could not have happened. And
    the court just ruled in the last 2 weeks that the data can be
    used in court.
        And I think that's one of the extreme examples we're seeing
    as far as use of data. But we're going to have a lot of these
    examples come forth, and with that, I think discussions as far
    as the privacy of Americans and, when is going too far even if
    it's looking at criminal fraud schemes?
        In another recent case in Arkansas, and it was a murder
    case, they were able to take a look at the data in their Amazon
    Alexa--and, you know, maybe some of you own these devices, but
    you talk into it and it gives you answers, but all of the
    questions are maintained in a cloud that can be pulled down and
    listened to. And basically a woman was murdered in a hot tub,
    and her husband said certain things about the incident. They
    went back and got the data from Alexa, even though Amazon tried
    to squash it, and they were able to show that the story he told
    about her death was not true.
        And so I think, as our cars have more computers, as our
    homes have more computers, everything is hooked to the
    Internet, as there are cameras everywhere in society today. The
    generation that's coming of age is going to have much less
    expectation of privacy than we have now, and that's a separate
    issue, but it's helping fraud investigation to no end, and
    that's only going to continue.
        Mr. Doak. Chairman Moran, I may make a comment there.
        Senator Moran. Please.
        Mr. Doak. The NAIC has just formed an innovation task
    force, which over the last several months we have been
    listening to the emerging technologies in all different areas
    that you highlighted, and it's one of something that the
    regulators have a very focused effort to stay on top of,
    whether it's cyber issues or the use of drones, telematics, big
    data. We have a big data working group that many of the
    commissioners are involved in. So I want to give you some
    assurances that the National Association of Insurance
    Commissioners are very focused on the emerging technologies and
    the uses of those.
        Senator Moran. I've seen evidence of this in the crop
    insurance world where big data can mine information about
    fraudulent behavior. And, again, you've testified today about
    finding fraudulent behavior in one kind of insurance arena that
    translates to the same kind of perpetration or the same
    individuals perpetrating those kind of criminal activities
    elsewhere. There's a lot of information out there. Does law
    enforcement have the tools necessary to--are they behind the
    curve in regard to this as compared to the insurance industry?
        Mr. Doak. We partner with law enforcement on a regular
    basis. We make any of the tools available to the
    investigations, no matter which way we're going back and forth.
    Mr. Lynch may have some comments related to that. But the
    regulators, through proper procedures, we're embedded in my
    state, as is the other states, to provide assistance, as a
    state agency, to any law enforcement agency that might be
    seeking some of that data, which is proprietary to an insurance
    company.
        Mr. Lynch. Mr. Chairman, yes, thank you. NICB is at the
    very early stages of working on this issue. Given our
    relationship with law enforcement, we're able to get into these
    communities earlier than most. And we're at the forefront, I
    think, of some neat things relative to social intelligence and
    helping policyholders and law enforcement better detect fraud.
    So I think more to come on that.
        Senator Moran. Ms. Weintraub?
        Ms. Weintraub. Yes. Thank you, Chairman Moran. I would like
    to add that, of course, as new technologies emerge and help all
    of the entities at the table and law enforcement, police, to
    enforce fraud more aggressively and effectively, it should be
    used. However, there should always be consumer protections as
    well. And we know in terms of privacy, we know in terms of the
    use of big data, being used to price for auto insurance, for
    example, that it provides opportunities for other factors not
    related to a safe driving record, but other aspects which are
    not directly related to safe driving to be used that cause a
    discriminatory impact on pricing for some especially low-income
    consumers. So that needs to be taken into account as well.
        Senator Moran. Thank you very much.
        Let me turn to the Ranking Member.
        Senator Blumenthal. Thank you. I'm going to try to be as
    quick as possible, but perhaps with the Chairman's permission,
    if we can take a break and then come back, let's see how far we
    get. And I would just like to ask at the outset whether you are
    available for another 20 minutes or so.
        [Witnesses nodding yes.]
        Senator Blumenthal. Well, let me see how far I can get.
        Senator Moran. What you're seeing is the Ranking Member
    trying to supersede the Chairman's intentions.
        [Laughter.]
        Senator Blumenthal. I am asking the Chairman's permission
    to do it, but let me see if I can conclude before we go to
    vote.
        I don't know how many of you--I'm sure Mr. Doak has seen
    the 60 Minutes piece on audits leading to life insurance
    companies being discovered to have uncovered a systematic
    industry-wide practice of not paying beneficiaries who were
    unaware there was a policy, something that is not at all
    uncommon. The 60 Minutes piece uncovered that insurers
    routinely use the Social Security Death Master File, but only
    to their advantage, to cut off annuity or retirement payments
    once the policyholder has died.
        When it came to life, insurance would claim that they had
    no idea that a policyholder had died. Even worse, an insurer
    would continue to pay themselves life insurance premiums out of
    the dead policyholder's nest egg. To put it most simply and
    bluntly, the insurer put the burden on the beneficiary to come
    forward, but often the beneficiary had no idea that the policy
    existed, and the insurer used that ignorance to its benefit.
    They have acknowledged, some of them have, their
    responsibility, and they have settled litigation, but some 35
    still have not done so.
        When one of your colleagues, Mr. McCarty was asked about
    this practice, he said he would release, quote, the hounds of
    hell on these insurers because, in effect, they were failing to
    pay benefits to beneficiaries, and that misconduct, in my view,
    was absolutely fraudulent.
        We're here about insurance fraud, and I'd like to ask you
    and Mr. Jay what you are doing to prevent this kind of fraud?
        Mr. Doak. Well, thank you, Senator. I did have the
    opportunity to see a couple of those segments, and we do know
    some of the work that has been done by the NAIC and some of the
    settlements that have been basically run by lead states in that
    area.
        One of the issues that the NAIC has recently put together
    is called a Lost Life Policy Locator Service, which was
    pioneered in a couple of states, and that has now gone
    nationwide. And for the record, we would provide, through the
    NAIC, an update to you on the actual stats of the findings of
    beneficiaries through that.
        Senator Blumenthal. I would appreciate that.
        Mr. Doak. So the NAIC is continuing to work on those
    settlements. And Commissioner McCarty is highly respected. And
    Commissioner Altmaier is the Florida commissioner who is
    continuing to work on some of those activities. So it has our
    attention, and we are remaining vigilant to make sure that
    those consumers get the monies that are due them.
        Senator Blumenthal. For the record, about 35 insurance
    companies still have not settled in that case.
        Mr. Doak. Right.
        Senator Blumenthal. Thirty-five major insurers have not
    settled.
        Mr. Doak. I would ask the----
        Senator Blumenthal. So people are going without these
    benefits as we speak.
        Mr. Doak. Yes, and----
        Senator Blumenthal. It needs to be a really urgent issue.
        Mr. Doak. Exactly. And I would ask your permission to have
    the NAIC put together some information on an update to those 35
    insurers and follow up on that particular item. But I can tell
    you it's a high priority. And we are having some success in
    some other areas relative to finding beneficiaries, sir.
        Senator Blumenthal. Thank you.
        Mr. Jay?
        Mr. Jay. We've looked at the issue, and I agree with the
    Commissioner as far as it's a regulatory issue and
    administrative issue for the insurance departments to oversee.
    To my knowledge, in taking a look at the companies involved in
    this, there was no criminal fraud. It may come in the realm of
    abuse or certainly bad practices on the part of the life
    insurance industry for not proactively trying to find when
    benefits are deemed to be due. But we support the insurance
    commissioners as far as their actions on the issue.
        Senator Blumenthal. Well, perhaps in your further response
    to my question, you can tell me what you're doing proactively
    to prevent these kinds of practices in the future because, as
    we all know, this kind of practice may not have constituted
    criminal fraud, although as a former prosecutor, I would have
    been interested to investigate it as criminal wrongdoing. Kevin
    McCarty, the Insurance Commissioner, probably doesn't have
    criminal jurisdiction, but I would respectfully suggest that
    criminal authorities ought to have a real interest in it.
        Mr. Jay. And we would support any attorney general,
    insurance commissioner, or fraud bureau to investigate it, and
    if they do find that there are criminal violations there, to
    prosecute it to the full extent of the law.
        Senator Blumenthal. Let me----
        Mr. Jay. It's just not our knowledge that that's happened
    so far.
        Senator Blumenthal. I understand.
        Mr. Doak. And I would make a comment that through the
    process here, I think one of the things that I would like to
    note about the Lost Life Policy Locator Service is that we've
    had the opportunity to find these for Oklahomans, and it's a
    very impressive chart since it has been rolled out by the NAIC
    in assisting consumers.
        But when the National Association of Insurance
    Commissioners, to the best of my knowledge, like in Oklahoma,
    when we find a beneficiary or match them up, there is no charge
    to them. There is no reduction in those fees. And I do believe
    that under some of the other circumstances, through the
    treasurers' departments in certain states, that there is a fee
    redacted. In my opinion, that's the wrong thing to do.
    Consumers should get 100 percent of the money that's owed them.
        Senator Blumenthal. I have one--I have a couple more brief
    questions.
        Senator Moran. To demonstrate my firmness, but also my
    accommodation, the floor is holding the vote open an extra 5
    minutes, so if you can wrap up in the next 5 minutes, we will
    both accomplish what we want to accomplish.
        Senator Blumenthal. This is bipartisan cooperation at work
    before your eyes in real time.
        [Laughter.]
        Senator Blumenthal. I will have more questions for the
    record. This area is very important to me. I want to commend
    Commissioner Kevin McCarty, of Florida, and your colleagues who
    have joined in the Task Force, as well as, of course, 60
    Minutes for exposing this fraud. I don't use that word lightly,
    it is a fraud, and exposure of it provides a tremendous warning
    to others to avoid this kind of fraud.
        And I think you and we have a special responsibility here
    given that we're talking about life insurance. We're talking
    about insurance people buy in the expectation their sisters,
    their brothers, their children, and their spouses are going to
    rely on it to survive, to live, and to reap the benefits of
    that life.
        A lengthy article in the New York Times last year detailed
    a new and disturbing trend in the whole life industry. I'm sure
    you're aware of it. Insurance companies have jacked up premiums
    on whole or universal life policies and have shifted the burden
    of dividend payments from the insurance company to other
    policyholders. People who bought universal life policies in the
    1980s and 1990s, some of which guaranteed annual returns of 4
    percent or more, are seeing their premiums now soar.
        So the new exorbitant rates have left many older Americans
    with no choice but to drop coverage and lose, you guessed it,
    the entire value of their policy after years and years of
    investing in it.
        And I am raising this issue. I know we're not going to have
    final answers today, but I want to ask Ms. Weintraub, realizing
    that many whole life policies were underwritten during a decade
    of high interest rates that could support more generous
    dividends. I also understand these insurance policies gave a
    guarantee, and policyholders seem to have kept their side of
    the bargain. Are these exorbitant increases in premiums fair
    and justified, or are they simply a way for insurance companies
    to reduce their liability and eliminate the most expensive
    policies, I understand they're expensive, but don't they have
    an obligation to do better?
        Ms. Weintraub. It certainly seems unfair to a consumer who
    has been paying into this policy and then only to find that it
    is unaffordable for them and they can't get the benefit of what
    they've been paying for. Certainly that has an unfair result.
    It's entirely the reason why consumers have insurance to begin
    with, and being unable to use it in the way that they've been
    paying for, for years and years is certainly problematic. And I
    would definitely recommend more research looking into how the
    disproportionate effect it has on especially older Americans
    and their ability to obtain coverage, and the investment they
    put into it.
        Senator Blumenthal. Thank you. I would invite other
    responses. I know we're short on time. Perhaps others can
    answer that same question for the record.
        And again my thanks to the Chairman for his generosity and
    indulgence. Thank you.
        Senator Moran. Does anyone want to include anything?
        Mr. Doak. I would just close by thanking you from the
    National Association of Insurance Commissioners, the
    regulators. We believe that state-based regulation is the best
    place for insurance. We're the closest place to the consumer.
    Like in my state, we've been regulating insurance since
    statehood. And my colleagues that I represent, we're very proud
    of the work they do protecting consumers.
        So we appreciate the opportunity to be here. This is a
    very, very timely topic and evolving topic relative to new
    trends in fraud. So thank you, Senators, for having us.
        Senator Blumenthal. If I may just make one concluding
    remark. I sat exactly where you are, Mr. Doak. I don't know
    whether it was 5 or 6 years ago, on a panel, actually I think I
    sat where Mr. Jay is now, and to my right was the Attorney
    General of New York, who argued that insurance regulation
    should be turned over to the Federal Government. It has been,
    as you say quite correctly, a state role and responsibility. I
    said no, insurance regulation should continue to be a state
    responsibility, but I said that the states have an obligation
    to do better, to be more rigorous in their oversight and
    scrutiny, and I would hope that they would be because I'll
    continue to be an advocate of state regulation.
        Mr. Doak. Thank you, sir.
        Senator Blumenthal. But I would hope that we can work
    together and improve the efficacy of the regulation.
        Thank you, Mr. Chairman.
        Senator Moran. I appreciate the cooperation from the
    Ranking Member. And I appreciate the witnesses testifying. And
    the record will remain open for 2 weeks for members to submit
    questions. I will have some, and it appears that the Ranking
    Member will, my guess is that other colleagues. We would ask
    you to respond to those. And again we thank you for your
    presence with us today.
        The Committee is adjourned.
        [Whereupon, at 11:15 a.m., the hearing was adjourned.]