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Viaticals Fraud > New
Viatical Law
State of Ohio, Department of Insurance
Communications Office
Wednesday, February 27, 2002
Insurance Director Covington Touts Successes
of New Viatical Law Before Congressional
Committee
Efforts to Unravel $105 Million
Viatical Settlement Scheme Model for Nation
COLUMBUS — Following the Ohio Department of Insurance’s recent
success in unearthing a national viatical fraud scheme and the successful passage
of legislation extending the authority of the Department to regulate the viatical
industry, Director Lee Covington was invited by Rep. Michael G. Oxley (R-Ohio)
to testify before the U.S. House Committee on Financial Services’ Subcommittee
on Oversight and Investigations Tuesday.
Chairman Oxley asked Director Covington to travel to the nation’s capital
because members of the subcommittee, chaired by Rep. Sue Kelly (R-New York),
expressed an interest in learning more about the viatical industry and the
fraud that occurs in this industry. Oxley and the rest of the Committee also
wanted to hear firsthand how the Department undertook the largest fraud investigation
in its history and, with the help of several federal agencies, successfully
unraveled a $105 million viatical settlement and investment scheme that defrauded
life insurance companies and investors nationwide.
Covington told members of the committee how the Fraud Division of the Ohio
Department of Insurance opened the investigation in the summer of 1999, discovered
and reviewed three storage rooms full of evidence, helped to execute four search
warrants, conducted hundreds of interviews, and organized thousands of documents
that were presented to the grand jury that handed up the indictments. The Department
investigator assigned to the case devoted more than 4,000 hours to the effort
during the past three years.
“The Ohio Department of Insurance’s ability to uncover a fraudulent
crime of this magnitude confirms that state-based insurance regulation is an
effective tool in the fight against insurance fraud,” Covington said.
The Ohio Department of Insurance also has been active on the legislative front,
developing and working on a new law, sponsored by State Rep. Amy Salerno (R-Columbus),
to prevent this kind of fraud. In January of 2001, Governor Bob Taft signed
into law legislation providing for the specific licensing and increased regulation
of viatical settlement providers and brokers.
Ohio was the first state to adopt legislation that incorporated the National
Association of Insurance Commissioners (NAIC) Viatical Settlement Model Act,
which was formally approved by the NAIC in December 2001. Ohio’s viatical
law offers senior protections, includes a definition of fraudulent viatical
settlement acts, provides administrative and criminal penalties for violations,
and requires that as part of the Department’s licensing requirement that
providers and brokers provide an anti-fraud plan, among other important provisions.
“This law gives the Department of Insurance regulatory authority to
aggressively combat the problem of viatical fraud and the authority to license
persons working in this industry,” Covington said. “The new legislation
enables us to provide protections to Ohio consumers that we were not able to
provide prior to this bill being enacted.”
Covington also told committee members that Congress can help state regulators
in their efforts to combat insurance fraud.
“The House of Representatives has already helped by passing Chairman
Mike Oxley’s legislation, H.R. 1408, the Financial Services Antifraud
Network Act of 2001. This bill is a giant step forward, and I strongly support
immediate action by the United States Senate to pass this legislation,” Covington
said during testimony.
This legislation, if passed, would provide state regulators access to an existing
network of criminal and administrative databases, including the Federal Bureau
of Investigation’s antifraud database.
“While much of our success in the recent viatical fraud investigation
was attributable to our close working relationship with federal agencies, Chairman
Oxley’s bill will formalize these interactions and encourage comprehensive
cross-regulatory coordination to detect fraud and provide comprehensive guidelines
for safeguards to protect the confidentiality, privacy, and security of shared
information,” Covington testified.
“According to the Coalition Against Insurance Fraud, insurance fraud
costs American families almost $1,000 per year,” Covington added. “It
is tax imposed on each American by criminals. We must utilize every resource
at our disposal to combat insurance fraud.”
The Department’s mission is consumer protection through financial solvency
regulation, market conduct regulation and consumer education. The Ohio Department
of Insurance is committed to providing the highest level of service to the
citizens of Ohio.
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