Proposed legislation to create and finance a named storm fraud prevention authority was looked on favorably by the House Insurance Committee on March 23, and the measure currently is scheduled for floor debate after getting a unanimous nod from the House Appropriations Committee, where committee members considered appropriating the more than $300,000 it is expected to take to fund the measure annually.
The bill, HB 692, is authored by Rep. Ed Larvadain, III, D-Alexandria, and was reported favorably with amendments by the House Committee on Insurance on a 7-5 vote and then recommitted to the Committee on Appropriations.
The Fiscal Note from the Legislative Fiscal Office indicates the expected cost for the first year would be $323,554, the result of hiring a director and assistant director ($200,000 salary and $107,246 related benefits). The five-year total is expected to be approximately $1.6 million.
As proposed, the Louisiana Named Storm Insurance Fraud Prevention Authority would be housed within the Louisiana Department of Insurance and would be governed by a 21-member board of directors, who serve without compensation; however, board members nondomiciled in Baton Rouge may receive travel and other reimbursements for attending board meetings. Two of the board members shall be legislative members, and they will receive legislative per diem of $168.
The proposed law provides that the attorney general serves as legal counsel and creates the Named Storm Insurance Fraud Prevention Authority Fund within the state treasury to pay for the administrative cost of the authority.
The authority is charged with reporting on or before March 1 annually to the House Committee on Insurance and the Senate Committee on Insurance regarding its activities in the preceding year.
In addition to Larvadain, speaking for HB 692 were Eric Holl, Real Reform Louisiana, a self-described pro-consumer advocate, and Douglas Quinn, executive director of the American Policyholder Association.
In speaking for his bill, Larvadain explained to the panel his concern about fraud and his desire to make sure everyone plays by the same rules. The purpose is not to bash insurance companies, he said. “If we attack insurance companies, we won’t have a market.” This bill will let all come to the plate and have a fair discussion.
Holl contended that there are “a lot of issues with fraud” and that the bill is not an anti-insurance bill, but will “create an authority to deal with fraud after an event.”
Rep. Lawrence “Larry” Frieman, R-Abita Springs, raised questions about what the fraud authority would do. He wanted to be sure the board does something worth $300,000. “It seems like (the authority) is just a conduit.”
Rep. Michael “Gabe” Firment, R-Pollock, questioned the make-up of the board.
Six of the board members are to be victims of a named storm, four of whom have filed a homeowners insurance claim in excess of $100,000 but less than $1 million and two of whom are business owners who have filed a claim of more than $50,000, according to the proposed legislation.
“Therefore one-third of the board is mad policyholders,” Firment observed.
“No sir,” Larvadain interjected.
Firment opined that he hopes “membership would be based on skills or knowledge.”
Larvadain pointed out that the proposed law stipulates that the House and Senate insurance committee chairs will make the appointments. “They aren’t going to appoint some wacko.”
Larvadain said his intention was not to “put a circus together. I don’t want a muffler guy dealing with the roof.”
Not wanting to dive too deeply into the issue, Firment said, “I think that incompetence is more of a problem with (insurance) companies than fraud.”
To make the point that insurance fraud is prevalent, Quinn said, “Someone who would not return a library book late will let extra work be done if the company is paying.”
When increasing bad faith fines came up, Quinn said that it is important to note that it is not the degree of the punishment that is a deterrent to fraud; it is the certainty of punishment.
Rep. John R. Illg Jr., R-River Ridge, explained that his house is not yet repaired, even though he has had “good success” with his insurance company. The hold-up is because of “the cost of business and problems with getting contractors to do the work.”
Firment contended that “this commission does not seem to be the answer to the problems.”
In response to a request by Firment for a legal definition of fraud, Quinn said various states’ penal codes define fraud differently, but the commonality in all is intentional deception for profit or to avoid loss.
Holl opined that Louisiana already has good anti-fraud laws on the books. He said the problem is awareness, investigation and enforcement. He told the panel that the proposed authority would investigate all types of fraud, including adjusters, engineers and homeowners, and accept complaints from insurers.
Having followed Holl on Twitter, Firment said, “Aggressively going after homeowners runs counter to what I see you focused on normally.”
Holl said he makes no bones about being a consumer advocate and repeated that the authority would investigate all types of fraud.
The number one fraud committed by adjusters, Firment suggested, is over estimating the loss to increase the fee bill.
In addition to the Larvadain, Quinn and Holl, a policyholder attorney, and the National Insurance Crime Bureau registered support for the bill.
The other side
Commissioner of Insurance Jim Donelon explained the Department of Insurance’s role in investigating, pursuing and addressing insurance fraud. The largest amount of insurance fraud comes from policyholders padding their claims, Donelon told the panel.
Indicating that a new fraud authority would be duplicative, Donelon said that the Louisiana Automobile Theft and Insurance Fraud Prevention Authority is charged with addressing insurance fraud, not just auto theft, and has cooperated with LDI in educating the public.
According to Donelon, former Sen. Blade Morrish authored legislation that funded LDI’s Fraud Unit. He explained that the LDI Fraud Unit is funded by an assessment on insurance companies, which currently generates about $5 million a year, of which LDI gets $500,000. LDI has 12 employees in the Fraud Unit and works with about 15 employees at the Attorney General’s Office and about two dozen employees at the state police.
Together, the three agencies comprise the Louisiana Insurance Fraud Task Force that is statutorily mandated. The partnership’s charge is to investigate and deter acts of insurance fraud.
According to a recent report to the legislature from the task force, the agencies that are members of the task force are the Louisiana State Police (Insurance Fraud/Auto Theft Program), the Office of Attorney General (Insurance Fraud Support Unit) and the Louisiana Department of Insurance (Insurance Fraud Section and the Louisiana Automobile Theft and Insurance Fraud Prevention Authority).
Donelon told the committee, that he already appoints two representatives of consumer groups to the LATIFPA board, but more are welcome. He said the AG’s office and state police are more involved in fraud than the LDI, but LDI provides the insurance expertise.
In response to a question from Rep. Matthew Willard, D-New Orleans, Donelon said his office does not investigate engineers and contractors because the LDI has no authority over them; however, LDI does investigate adjusters because they are licensed by the department.
Willard indicated that he was trying to discern what the proposed authority would do that isn’t already being done. He said his understanding is that Larvadain is proposing a board that would allow policyholders some “cause of action” when they feel like they have been victims of fraud by an insurance company, an adjuster or even an engineer.
Donelon pointed out that LDI gets very few complaints from consumers alleging fraud; however, the department gets many consumer complaints stemming from differences of opinions with insurers about the amount of loss.
During 2020, LDI’s Division of Insurance Fraud received 2,694 reports of suspected fraudulent claims, according to the task force report to the legislature. Since its inception in 2007, the Division of Insurance Fraud database has accumulated 40,628 entries of suspected fraudulent claims. The division referred 1,445 claim fraud investigations to the state police in 2020. There were 60 arrests resulting in 106 charges for numerous crimes as a result of criminal referrals related to suspected fraudulent claims, the report states.
Even though most courts were closed for the majority of 2020, there were 69 convictions, of which 26.1 percent, or 18, were in Caddo Parish, according to the report issued in 2021. St. Bernard Parish followed Caddo with five convictions, or 7.2 percent.
Rep. Kathy Edmonston, R-Gonzales, asked Donelon why “we need another committee” if LATIFPA is already looking at homeowners and auto.
Donelon’s response “We don’t.”