House Insurance Committee hears DIFS fraud-unit overview and preview of seven-bill package

Lansing The Michigan House Insurance Committee heard an overview of the Department of Insurance and Financial Services(DIFS) Fraud Investigation Unit and a preview of a bipartisan seven-bill package aimed at strengthening the state's ability to detect, investigate and prosecute insurance fraud.

The presentation was made by Jenny Gies, legislative liaison manager for DIFS, accompanied by Joe Garcia, senior deputy director and general counsel, and Jennifer Kinsey, regional manager who supervises investigators. "The fraud investigation unit was established within the department in September of 2018 by executive order 2018-9," Garcia said, adding that the unit was codified into the insurance code in June 2019 and is located in chapter 63 of the insurance code. Gies said the unit's work seeks to lower insurance costs by addressing fraud, which she said contributes to higher premiums.

The nut graf: DIFS officials told lawmakers the Fraud Investigation Unit (FIU) operates as a criminal justice agency within DIFS, partners with law enforcement, and has referred cases that have led to convictions and court-ordered restitution. Officials previewed legislation intended to improve information sharing, expand covered conduct, and provide prosecutors with additional sentencing tools.

What DIFS reported and proposed

DIFS described the FIU as a 12-FTE unit (two managers, six investigators, three analysts and one administrative support) that investigates suspected fraud across insurance and financial-services markets and works with local, state and federal law enforcement. Kinsey said the FIU refers cases for prosecution when evidence supports criminal charges. During a recent reporting period the FIU reported eight criminal convictions that resulted in court-ordered restitution, fines and costs totaling more than $840,000. Since September 2018 the FIU said it has referred more than 158 cases for prosecution, producing 58 convictions to date.

Officials previewed a package of seven bills currently in development with industry and other enforcement partners. Key elements described by DIFS staff included: - an information-sharing bill to allow DIFS to share suspected-fraud information with entities such as the National Insurance Crime Bureau (to reduce siloing and support multistate investigations); - an amendment to extend anti-kickback provisions in the health care false claims framework to include automobile insurers providing PIP coverage; - a proposal to add insurance fraud to the state penal code's racketeering definitions; - a tiered-penalty proposal that would allow prosecutors to offer lower sentences (e.g., misdemeanors or lower-level felonies) in exchange for information to pursue larger, multistate schemes; - a companion sentencing bill; and - a requirement that insurers file fraud reports with DIFS when they reasonably believe a fraudulent insurance act has occurred.

DIFS staff described those bills as intended to "further uncover, enforce and deter insurance fraud" and said they had coordinated with the Michigan State Police and the Department of Attorney General on the package. Garcia also noted participation in the National Association of Insurance Commissioners' Anti-Fraud Task Force.

Lawmakers' questions and DIFS responses

Committee members pressed staff on intake, triage and outcomes. Representative Fitzgerald asked why nearly 3,800 fraud reports in one year led to only 56 opened investigations and what happened to the remainder. Garcia and Kinsey explained that many reports do not contain sufficient information to support criminal prosecution, that some reports overlap and are consolidated into single investigations, and that limited FIU resources require triage toward cases with the greatest systemic impact (for example, ring activity or high-dollar multistate schemes). Kinsey said industry is the source of approximately 80% of fraud reports and DIFS can request additional information from carriers when needed.

Representative Tisdell and Minority Vice Chair Carter asked about the potential use of artificial intelligence in underwriting to detect fraud before it occurs. DIFS staff said the FIU does not use AI as an investigative predictive tool on the front end but that industry conversations about underwriting tools are ongoing. Garcia said some prevention work is conducted through education and outreach and through coordination with company-specific special investigative units and industry trade groups.

Officials' limitations and data caveats

DIFS officials emphasized resource constraints and limits on the unit's authority: FIU investigators are not sworn police officers and generally rely on law enforcement partners to secure warrants and make arrests. Garcia said DIFS does not routinely track whether court-ordered restitution or fines are ultimately collected; collections are administered through courts and may not be reported back to the FIU. Kinsey said solvability and available evidence affect how quickly cases move; a case with adequate evidence can be prepared for prosecutor referral in about eight months on average.

Ending

Committee members thanked DIFS for the briefing and officials said they would share the FIU's forthcoming 2025 annual report with the committee when finalized.