Insurance fraud is not a local problem. It is a depletion of the wealth of the entire country. Insurance fraud is recognized to be a $100 Billion yearly crime in which the victims of the crime are insurers who are less than loved by the public. If properly prepared, however, the insurer victim can avoid liability to those who attempt to profit from an insurance policy by fraudulent conduct.

The majority of fraudulent insurance claims are made by people with legitimate claims covered by an insurance policy that attempt to add to the legitimate portion of the claim. Insurance regulators often describe these by the incongruous and inaccurate description of "soft fraud" which they differentiate from "hard fraud."

Of course insurance fraud is, whether "soft" or "hard" is fraud. Fraud, regardless of the name given to it, is fraud, and should deprive an insured of the benefits of the policy. California requires that all "Integral anti-fraud personnel" must be trained to recognize insurance fraud and how to report that fraud to the state. They are any person employed by an insurer who the insurer has not identified as being directly assigned to its Special Fraud Investigation Unit (SIU) but whose duties may include the receipt, processing, investigating, or litigation pertaining to payment or denial of a claim or application. These personnel include claims handlers, underwriters, agents, policy handlers, call center staff, legal staff, and other insurer employee classifications that perform similar duties.

Insurers in states where the tort of bad faith exists, like California, deny fraudulent insurance claims with fear and trembling. The specter of punitive damages has worked to make multi-millionaires of many insurance criminals who convince insurers to settle rather than take a chance on trial. Insurers pay claims they believe they do not owe because they are fearful - regardless of the merits of their position - of being assessed punitive damages in a bad faith action. That fear will continue as long as there is not an effective means of defeating fraud and putting perpetrators in prison.

California collects many millions every year from the insurance industry to support the Fraud Division and doles some of those funds out to local district attorneys to be used to defeat fraud. The effectiveness of this system is less than exciting. A Proposal The lawyer for the Department of Insurance of each state, including the state of California, is the State Attorney General. A special unit should be established in the office of the Attorney General of the state of California, funded with the monies taken from the insurance industry to support the war against insurance fraud, rather than splitting the funds among local prosecutors who are not interested in prosecuting the crime. This unit should be given a simple mandate: File and prosecute every insurance fraud brought to the unit by the Fraud Division that has a better than 50% chance of success. The Unit established by the AG should concentrate on prosecuting every-day-insurance fraud, the frauds of opportunity that take 90% of the money paid to fraud perpetrators, in the range of $5,000 to $50,000 as well as the major fraud rings. Single counts should be prosecuted. Multiple counts and multiple defendants simply make the case complex and cause the courts to impose a settlement on the parties. Teeth must be put in the posters that say commit insurance fraud, go to jail.

The California Department of Insurance receives thousands of reports from insurers of potential fraudulent claims every month. The state does not have the staff, the ability or the desire to investigate and prosecute every case brought to them. If there was a dedicated unit of prosecutors, working directly with the investigative staff at the Department of Insurance, prosecuted only 5 percent of the suspected fraudulent claims reported to the state, the deterrent effect will be enormous. Jail sentences should be made mandatory and the legislature should remove from local judges the right to grant convicted felons probation or short jail sentences for what is, by statute, a major felony. It is not enough for the state to say that the insurance companies must investigate and work to fight fraud.

The state must also aggressively and vigorously fight insurance fraud. Today, a person perpetrating an insurance fraud need only be concerned that an aggressive fraud investigation might delay, or reduce, the amount he might recover from his crime. Criminal prosecution for the crime of insurance fraud is so minuscule, in relation to the amount of fraud as to be nonexistent. It certainly does not act as a deterrent.

The stories in my book, "Heads I Win, Tails You Lose" were written to show how insurance fraud is taking money out of the pockets of innocent and honest people who buy insurance. For every dollar taken by a fraud an insurer must collect two dollars in premiums. Every person in the US who does not commit fraud is paying to support those who do. A minimum of $20.00 for every $100.00 you pay in premiums goes into the pockets of insurance criminals. If enough people complain perhaps, the prosecution levels will increase. If not, the fraud will continue, and the citizens of California will continue to pay too much for insurance and insurers will be forced to waste the funds they pay to support prosecution of insurance fraud while defending bad faith suits brought by those accused and neither arrested nor tried for fraud.