[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
    
    
    
    
    
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                   U.S. GOVERNMENT PUBLISHING OFFICE
                   
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       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)
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    \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)
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    \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)
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    \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)
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    \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)
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    \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)
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    \12\ http://www.insurancebusinessmag.com/us/news/breaking-news/
insurance-agents-indicted-for-300000-mail-fraud-70249.aspx
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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.
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    \13\ http://addictionblog.org/treatment/health-insurance-and-its-
influence-on-the-opioid-epidemic/
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    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\
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    \14\ http://www.insurance.ca.gov/0400-news/0200-studies-reports/
0700-commissioner-report/upload/AnnualReport2013.pdf, at page 39.
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    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\
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    \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 
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        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.
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    \16\ https://skift.com/wp-content/uploads/2015/02/2015-RQ-Media-
Release-Report_020415.pdf at page 13.
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    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\
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    \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.]