INSURANCE

DEPARTMENT OF BANKING AND INSURANCE

DIVISION OF ANTI-FRAUD COMPLIANCE

Department of Law and Public Safety
Office of the Insurance Fraud Prosecutor

Fraud Prevention and Detection

Readopted with Amendments: N.J.A.C. 11:16

Adopted Repeals and New Rules: N.J.A.C. 11:16-6 Appendix Exhibits OIFP-1A, OIFP-1B and OIFP-2

Adopted New Rules: N.J.A.C. 11:16-6 Appendix Exhibits OIFP-3A, OIFP-3B and OIFP-4.

Proposed: December 4, 2000 at 32 N.J.R. 4197(a)

Adopted: January 31, 2001 by Karen L. Suter, Commissioner, Department of Banking and Insurance and, as to N.J.A.C. 11:16-6, January 29, 2001 by John J. Farmer, Jr., Attorney General of New Jersey

Filed: January 31, 2001 as R. 2001 d. 76, with substantial and technical changes not requiring additional public notice or comment (see N.J.A.C. 1:30-4.3.)

Authority: N.J.S.A. 17:1C-6(e), 17:8.1, 17:1-15e, 17:23-8 et seq., 17:23-19, 17:23-20 et seq., 17:33A-1 et seq., and 47:1A-2.

Effective Date: January 31, 2001, Readoption
March 5, 2001, Amendments, Repeals and New Rules

Expiration Date: January 31, 2006

Summary of Public Comments and Agency Responses:

During the comment period that closed on January 3, 2001, the Department of Banking and Insurance (the "Department") and the Department of Law and Public Safety, Office of Insurance Fraud Prosecutor (the "OIFP") (collectively referred to as the "Agencies") received six written comments regarding this proposal from the following: Delta Dental Plan of New Jersey; Allstate New Jersey Insurance Company; New Jersey Manufacturers Insurance Group; Insurance Services Office, Inc.; Amica Mutual Insurance Company, and the Insurance Council of New Jersey.

1. COMMENT: One commenter advised the Department that the National Insurance Crime Bureau (NICB) referred to in N.J.A.C. 11:16-2 recently transferred its claims data base and related software to the Insurance Services Office, Inc. (ISO). The result of this transaction constitutes a merger of the NICB vehicle claims data with the claims data bases maintained by ISO into a single data base containing bodily injury, property, workers compensation, and vehicle claims. Thus, insurers currently report motor vehicle theft, salvage and related transactions to ISO, the successor in interest to the NICB.

The commenter asks that the provisions of N.J.A.C. 11:16-2 be amended upon adoption to include a reference to "the NICB and/or its successor." The commenter notes that this change will not alter the substantive rights or obligations of any interested party and will permit the rule to more closely follow the industry practice.

RESPONSE: The Department agrees with the suggestion of the commenter and will make the requested amendments by N.J.A.C. 11:16-2.1 and 2.2 upon adoption. The Department also notes that these amendments do not adversely impact on any interested party and do not impose any added burden on anyone.

2. COMMENT: One commenter supports the efforts of the agencies in confronting insurance fraud, abuse and overutilization. The commenter commends the implementation and enforcement of these strong anti-fraud laws and regulations and recommends the readoption of Chapter 16.

The commenter makes several suggestions for further improvement in N.J.A.C. 11:16-6. The commenter states that the agencies should be more flexible in the review and approval of fraud prevention and detection plans. The commenter urges the agencies to consider provisions that would provide for deemed approval of fraud prevention and detection plans that are not rejected within 60 days of submission by the insurer to the agencies.

The same commenter also asks the agencies to be more flexible in determining the specific makeup, corporate reporting relationships and staffing of special investigation units (SIUs). The commenter claims SIU functions can be properly operated without requiring the establishment of a separate unit from the claims and underwritings departments.

RESPONSE: Regarding the suggestion that the agencies adopt a 60 day deemer for automatic approval of an insurer's fraud prevention and detection plan, the provisions of N.J.A.C. 11:16-6.9(a) already provide that an insurer's plan shall be deemed approved, if not affirmatively approved or disapproved, within 90 days of the filing. The agencies consider the existing 90-days to be appropriate, considering the nature and extent of the review process, and have determined that no action on this suggestion is necessary.

The commenter also recommends more flexibility by the agencies in their review and approval of fraud prevention and detection plans. The agencies do not agree with this suggestion. The process established in N.J.A.C. 11:16-6 was adopted January 4, 2000. The insurers were given until August 5, 2000 to file new fraud prevention and detection plans and manuals in conformance with the rules (see N.J.A.C. 11:16-6.11). The agencies gave extensions of time to those insurers that requested relief from this deadline. Thus, it appears that sufficient flexibility in the review and approval process already exists and no change in the rules is necessary.

The agencies consider that strict compliance with the fraud prevention and detection plan rules to be necessary for several important reasons. This new subchapter imposes significant new obligations on insurers and it is essential that all insurers begin from the same starting point in order to judge the effectiveness of these programs. Additionally, it should be noted that non-complying insurers would easily gain unfair advantage over insurers that comply with the strict letter of the law. Thus, the agencies consider complete compliance with this subchapter to be essential. At this juncture, with only limited experience with the current regulatory framework, no reduction is appropriate.

In addition, one of the goals of these rules is the criminal prosecution of individuals engaging in insurance fraud. Since such matters necessitate careful observance of established procedures for the investigation and the preservation of evidence, it is critically important that independent and professional investigators specially trained in criminal procedures staff an insurerís SIU. Thus, the agencies consider that special training and job titles are appropriate for SIU personnel.

Lastly, the ultimate goal of N.J.S.A. 17:33A-15 and this chapter is the lessening and/or elimination of insurance fraud. This will result in a reduction in the payment of fraudulent claims and diminish the constant pressure to increase premiums to pay questionable claims. Ultimately, the consumer benefits from these efforts and society in general is improved by the diminishment of insurance fraud.

For these reasons, the agencies do not consider that any lessening of the vigor with which the agencies review the fraud prevention and detection plans submitted by insurers as recommended by the commenter is appropriate.

3. COMMENT: One commenter recommended that the proposed OIFP referral forms 3A and 4 include a place to record medical providers tax identification number, license number and state in which they are licensed. Additionally, it has been recommended that the status section of the forms contain an "otherí category.

RESPONSE: The OIFP agrees and has added the additional categories to the appropriate forms.

4. COMMENT: Three commenters expressed concern with the "Custodian of Records Certification" section of the OIFP referral forms. One commenter believes this certification places undue burden on the custodian with regard to older claims. All expressed concern with the provision of the certification that recites that no other records exist.

RESPONSE: The OIFP recognizes the commenters concerns and the difficulties an insurance carrier may face in certifying that no other records exist. Therefore, upon adoption the OIFP is amending the certification to state: "I certify that all records known or presently available are enclosed." Regarding the comment that this certification places an undue burden on companies, the agencies disagree. The purpose of this proposal is to reduce the burden on carriers when litigation by OIFP, sometimes years after a carrierís referral, requires that the submitted documents be certified by the carrier. The agenciesí experience has demonstrated, for the same reason cited in the comments, that it is sometimes extremely difficult to locate individuals who may have referred a matter to OIFP years earlier. Therefore, making the certification at the time of the referral would prove less of a burden for both the carriers and OIFP.

Federal Standards Statement

A Federal standards analysis is not required because these rules regulating fraud prevention and detection plans are subject to the laws of the State of New Jersey and are not subject to any Federal requirements and standards.

Full text of the readoption can be found in the New Jersey Administrative Code at N.J.A.C. 11:16.

Full text of the adopted amendments and new rules follows (additions to proposal indicated in boldface with asterisks *thus*; deletions from proposal indicated in brackets with asterisks *[thus])*.

SUBCHAPTER 2. REPORTS TO THE NATIONAL INSURANCE CRIME BUREAU

11:16-2.1 Purpose and scope

This subchapter governs the reporting of motor vehicle theft or salvage and related transactions between insurers and the National Insurance Crime Bureau ("NICB") *or its successor*, in implementation of N.J.S.A. 17:23-19. This subchapter applies to all insurers transacting motor vehicle insurance in New Jersey.

11:16-2.2 Definitions

The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise.

...

*National Insurance Crime Bureau ("NICB") means that corporate entity, or its successor in interest that is referred to in N.J.S.A. 17:23-19 that operates and maintains a data base for the data referred to N.J.A.C. 11:16-2.4.*

(OFFICE OF ADMINISTRATIVE LAW NOTE: The following adopted N.J.A.C. 11:16-6 Appendix Exhibits OIFP-1A, OIFP-1B, OIFP-2, OIFP-3A , OIFP-3B and OIFP-4 and dated forms identifies, incorporate the changes upon adoption discussed in Comments/Responses 3 and 4 above, and replace in full text, without changes upon adoption symbolism, those versions of the Exhibits proposed.)