WHAT DOES THE DEPARTMENT OF INSURANCE DO ABOUT INSURANCE FRAUD?

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The Department of Insurance’s Insurance Fraud, Legal and Compliance, and Financial programs investigate insurance fraud cases. The Fraud Unit helps federal, state and local criminal justice agencies prosecute the perpetrators. The Commissioner  of Insurance revokes the licenses of agents and adjusters who commit fraudulent acts and issues cease-and-desist orders to halt unlicensed insurance operations and deceptive trade practices. The Department of Insurance informs the public of these actions through news releases. In many instances, the Department of Insurance works through the State Office of the Attorney General to secure court injunctions against fraudulent companies and restitution for their victims.  

Pyramid Schemes

Fraudulent products involving insurance sometimes are sold through multi-level marketing or "pyramid" schemes that usually are promoted through low-budget means like fliers, word of mouth, and grocery store bulletin board notices.

At the heart of all pyramid schemes is the recruitment of salespeople who share their commissions with the recruiter. Theoretically, a super recruiter can sit back and collect commission checks without selling anything. These grandiose dreams seldom, if ever, come true.

Multi-level marketing is legal when commissions and other payments are tied to the actual sale of goods. It is usually illegal, however, when one’s income depends solely on recruiting new salespeople. Pyramid schemes in the sale of insurance are illegal because licensed agents cannot legally share commissions with someone who is not licensed.
  

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