Minn. Plans Program to Raise Public Awareness of Insurance Crimes

At a rate of about three a day, state Commerce Department regulators have been posting enforcement actions against insurance agencies and companies, real estate agents, mortgage originators, security brokers and others.

But that information doesn’t always get into the hands of consumers, as a recent $3 million insurance fraud scheme victimizing people in farm towns near Rochester goes to show.

The insurance license of an Austin businessman had been revoked years earlier, but his customers didn’t know that.

In response the Minnesota Department of Commerce is planning a major outreach to warn consumers when insurance agents in their area have run afoul of the law. They’ll do it through the Internet, in community newspapers and a monthly bulletin for the media and industries it serves. The bulletin will note trends in violations and enforcement.

“We’re going to be more proactive; that’s the bottom line,” said Bill Walsh, a spokesman for the department.

Fraud costs insurance carriers and consumers at least $80 billion a year in the United States, according to the Coalition Against Insurance Fraud.

“Insurance fraud is a crime that everybody pays for, and you pay for it in higher rates because it’s based on the number of claims,” said Ted Trahan, chief of the Insurance Fraud Division at the Minnesota Commerce Department.

Minnesota has had an insurance fraud unit for about two years. The five experienced police officers will soon be joined by two more. There are also two industry analysts, with a third on the way.

Their charge is to investigate those who have “padded” or inflated actual claims, those who have misrepresented facts when applying for insurance, those submitting claims for injuries that never occurred, and those who stage accidents.

The Legislature granted the unit special access to employment records, bank records, medical records and workers’ compensation records, access that sheriffs’ offices and police departments typically don’t have.

From last July to this June, Trahan said the unit received more than 926 complaints, compared with 337 complaints the year before.

Tipsters have reported people fraudulently collecting workers’ compensation, such as a man collecting such payments who was spotted carrying shingles up a ladder as he put on a new roof.

So far, the unit’s biggest case involved Dale Schlichting, who faces charges in Dodge County of theft by swindle and insurance fraud and federal charges of wire fraud.

Schlichting, of Austin, allegedly ran a Ponzi scheme, also known as a pyramid scheme, by issuing fake policies.

“It was a huge case, and it impacted a lot of people down there,” Trahan said. “There’s an example of a guy selling insurance annuities, and he’s guaranteeing that they get 10, 12 percent interest on their investments. He had to keep selling them because he’s paying money out to the original investors. It was like a Ponzi scheme, and it just collapsed because he ran out of dough.”

Schlichting had run afoul of insurance rules before, leading to a suspended agent license in 2001 and a revoked license in 2003.