Press Release

California Insurance Dept. Announces Fraud Division Restructuring

11/27/96

Fraud Division to be re-structured; plan will add investigators, cut
administrative overhead

SACRAMENTO, Calif.--(BUSINESS WIRE) -- The number of insurance
department investigators who investigate suspected cases of insurance
fraud will increase by 20 percent under a plan announced Monday by
Insurance Commissioner Chuck Quackenbush.

The reorganization will be implemented with no increase in the
department's budget.

"Protecting consumers by relentlessly attacking insurance fraud has
been and will remain at the top of our list of priorities at the
insurance department as long as I am commissioner," Quackenbush
said. "The public has made a major commitment to fighting insurance
fraud, and it is my job to carry out that mandate in a cost-effective
fashion. This plan shows us how to use existing resources to put more
cops on the street and more crooks in jail."

Under the new organizational structure, the Fraud Division will deploy
an additional 26 front line investigative staff to its eight field
offices throughout California. Field offices will be responsible for
their own intake and case management functions, and investigators will
be multi-disciplinary. Currently, intake and case management functions
are centralized, and investigators are assigned to either the workers'
compensation, automobile or special operations bureaus.  Those bureaus
will be eliminated.

The restructuring plan calls for a more efficient supervisor-to- staff
ratio one supervisor for every seven staff members in contrast to the
current ratio of one supervisor for every four staff. Investigation
teams will consist of eight investigators and one investigative
assistant who will perform many of the same tasks now delegated to the
Fraud Intelligence Specialist Team (FIST), which will be
eliminated. Administrative staff will be reduced from 17.3 percent of
total personnel to 13.9 percent.

"My goals are to improve the Fraud Division's productivity and its
accountability to the public," the commissioner said. "The changes
embodied in this plan will help us deliver what the public expects and
deserves: a first-class law enforcement agency that is fully engaged
in its mission to reduce the economic toll consumers pay for insurance
crimes.

"We are fortunate to have many skilled and dedicated staff members in
the Fraud Division who share our commitment and deserve the
leadership, systems and infrastructure needed for optimum
productivity."

KPMG Peat Marwick LLP (KPMG), a nationally respected management
consulting firm with extensive experience analyzing law enforcement
and other government agencies, was hired by the Department of
Insurance to review all its operations and recommend organizational
changes to improve the ability of the department to serve the
public. In August, the department announced its plans to reorganize
all divisions except for the Fraud and Legal Divisions.  KPMG's report
on the Legal Division will be released soon.

The KPMG analysis found that during the 1995-96 fiscal year
investigators averaged 4.4 arrests across all programs (auto, workers'
compensation and special operations) at an average cost of $39,331 for
each arrest.  On average, each investigator worked on seven cases
during a one-month period while 10.3 cases were assigned to them
during that same period, meaning that 30 percent of all cases received
no attention from investigators in a one-month period. The average
backlog per investigator across all programs was 23.4 cases -- three
times the number of cases worked in an average month. In the
automobile and special operations bureaus, the backlog is at critical
levels: 32.4 cases per investigator in the auto fraud bureau and 59.4
cases per investigator in the special operations bureau.

The report found great disparity in backlogs among investigation
teams. On June 1, 1996, one auto bureau team had a case backlog of 14
cases, while another had a backlog of 414 cases. On the same date, one
workers' compensation team had a backlog of five cases and another had
a backlog of 197 cases. One special operations team had a 38 case
backlog, while another had a backlog of 336 cases. At the end of
fiscal year 1995-96, it was apparent the backlog was continuing to
increase with no system in place to reduce it.

Of the 2,013 workers' compensation and automobile fraud cases received
by district attorneys during fiscal year 1995-96, 348 (or 17.3
percent) were submitted by the Fraud Division. That represents two
percent of the 17,076 suspected fraudulent claims reported to the
Fraud Division that year. Under the current intake system, less than
20 percent of the suspected fraudulent claims reported to the
centralized intake unit are sent to the field offices.

The Fraud Division was established in the California Department of
Insurance in 1979. In the current fiscal year, it has 232 authorized
positions and accounts for $45 million of the department's total
budget of $116.5 million.  Almost half (47 percent) of the Fraud
Division's budget is disbursed to district attorneys to support the
prosecution of fraud suspects. Automobile insurance fraud enforcement
is funded by a $1 assessment on every insured vehicle. Workers'
compensation fraud enforcement is funded by assessments on insured and
self-insured employers, while investigations relating to other lines
of insurance are financed by a $1,000 annual assessment on insurance
companies licensed to do business in California. The Fraud Division
maintains offices in Los Angeles, San Diego, Orange County, Rancho
Cucamonga, Fresno, San Jose, Sacramento and Martinez.

NOTE: Please visit the Department of Insurance Website at
http://www.insurance.ca.gov Non-media inquiries should be directed to
the consumer hotline, 800/927-HELP.