State gets insurance fraud unit Schaefer's order bypasses Assembly

November 26, 1992|By David Conn | David Conn,Staff Writer

Gov. William Donald Schaefer, rebuffed this year by a General Assembly unwilling to create a state bureau to combat insurance fraud, has taken matters into his own hands by executive fiat.

Mr. Schaefer has signed an executive order creating an insurance fraud unit within the state Department of Licensing and Regulation (DLR), staffed by personnel from the Insurance Division, which is a unit of the department; the Maryland State Police, and the state Attorney General's Office.

Headed by state police Sgt. John Davis, the bureau's mission is to investigate complaints and prosecute lawsuits focusing on those suspected of committing fraud against insurance companies.

Because the unit is intended to "supplement and complement the [existing anti-fraud efforts] of many insurers," according to the order, the governor's staff is accepting voluntary contributions from the companies that stand to benefit most directly from the bureau.

To date, the industry has made about $130,000 in pledges and contributions, with more possibly on the way, according to members of the governor's legislative staff.

John Andryszak, vice president at Baltimore's USF&G Corp., said that his company wrote a check for $20,000, while GEICO Corp. of Chevy Chase provided $30,000, said August P. Alegi, group vice president.

The bulk of the bureau's budget, which is still undetermined, would come from general funds within the licensing and regulation department. That same department was forced to curtail a consumer protection bureau within the Insurance Division earlier this year because of budget constraints, an action the governor found "regrettable," according to David Iannucci, Mr. Schaefer's chief legislative officer.

The executive order, signed Nov. 13 but not publicly announced, also created a nine-member Insurance Fraud Advisory Council of state officials, industry members and representatives of the general public. The governor plans to make a public announcement about the new unit on Dec. 11.

According to Mr. Schaefer's order, national estimates of fraud range from 5 percent to 25 percent of all insurance claims. In Maryland, 5 percent of automobile insurance claims would amount to more than $50 million a year.

In the previous session, the Senate Finance Committee killed a House-passed bill that would have reorganized the Insurance Division, including creating a fraud bureau with extra civil enforcement powers that are not included in the governor's order.

Consumer advocates had raised fears then that stepped-up attacks on fraud could translate into insurance company pressure on customers to settle even legitimate claims. Insurers with a history of delaying payments could use the fear of fraud as a way to further cut costs, they argued.

But "the biggest concern is that this is something they couldn't get done through the front door, so they got it through the back door," said a Maryland Senate staffer who declined to be identified. The creation of the unit by executive order does not call for General Assembly approval, though further government funding could require legislative appropriations.

Indeed, Mr. Alegi of GEICO recalled a dinner with Mr. Schaefer recently during which insurance executives said, " 'Y'know, we're just never going to get a bill past the Senate Finance Committee.' So the governor said, 'Fine, I'll do it.' "

Mr. Iannucci said his staff and the governor have "talked to legislators in advance as to what would be in this proposal. We have not encountered any serious opposition due to the process" of creating the fraud unit, though different suggestions were raised about where the unit should be situated, he said.

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