On July 31, 2020, the California Department of Insurance revised Special Investigative Unit (SIU) Regulations were filed with the California Secretary of State. They will be effective October 1, 2020.

Next month, CDI Fraud Division will be conducting training presentations on these new regulations. The format and training dates will be announced in the near future.

The definition of contracted entity was revised by section 2698.30 to specify which entities that work with an insurance company are subject to the requirements within these regulations. This definition includes subcontractors and sub-subcontractors, This definition excludes affiliates and subsidiaries. It also excludes various contractors who provide expert opinions or contractors who perform a discrete/specific investigative task (provided the contractor does not participate in the claims handling function or make decisions on behalf of the insurer).

Section 2698.30 specifies the specific contract language required to be included in insurance company contracts with contractors, subcontractors, and sub-subcontractors that provide SIU or IAF services.

These changes were driven by CDI concerns that loose SIU oversight of decentralized, multi levels of contractors was leading to significant noncompliance and less effective SIU operations. Insurance companies have until April 1, 2021 to update their contracts to comply with this section.

The definition of timely release of documentation to the Fraud Division was clarified in section 2698.34 by insurance line (no later than 30 days, except Workers’ Compensation which is 60 days), the ways in which information can be provided to CDI was specified, and language to address password protected files was added.

Redundant language was removed and language was added in section 2698.35 to specify the insurer’s IAF procedures must include red flags that address each line of insurance or each insurance product transacted by the insurer.

Language was added to section 2698.35 that requires the SIU’s thorough analysis of the claim must take into consideration factors indicating insurance fraud, identifying which industry recognized databases are used by the SIU, the summary of the investigation is a stand-alone entry, and the SIU investigation summary must answer specific questions related to the alleged existence of insurance fraud.

Language was also added that requires if an SIU investigation is not opened due to the referral not being credible, the reason for that conclusion must be documented.

A number of these changes were driven by CDI’s concern that SIU effectiveness may suffer as the industry moves away from field investigators to a desk investigation structure. CDI is seriously concerned the industry may short change or understaff its SIU function as a cost cutting measure. These changes give CDI the ability to initiate an enforcement action should an insurance company decide to make this type of short sighted decision.

These and other important changes can be read in the full text of the new SIU Regulations.