We, the members of the Fourteenth Statewide Grand Jury, are continuing to investigate insurance fraud committed within the State of Florida.

In the fourth phase of our work, we have examined non-standard automobile insurance agencies. These insurance agencies provide automobile insurance and related products to consumers who often times are not able to secure insurance with standard insurance companies, due to driving history, age or costs. The non-standard insurance agencies exist in order to secure insurance for all drivers, as required by Chapter 627, Florida Statutes.

We have learned through the course of our investigation that, in addition to selling insurance, many of these agencies offer optional non-insurance related products (i.e. towing clubs, legal plans) to their customers as an added means of profit for the agency. Unfortunately we have also learned that deception, misrepresentation and other fraudulent means are often used in order to insure these ancillary products are sold. During the course of this investigation we have heard testimony from licensed insurance agents and customer representatives in the non-standard market, investigators and analysts from the Department of Insurance, Division of Insurance Fraud (DIF), agents with the Department of Insurance, Division of Agent and Agencies and from an attorney from the Department of Insurance. We have further reviewed documents, tape recordings, statistics and analytical data provided by the Division of Insurance Fraud.

We have returned one indictment charging a non-standard insurance agency (with 22 locations) and twenty-nine insurance agents and customer representatives with three felony counts including Racketeering, Conspiracy to Commit Racketeering and Organized Fraud. The Racketeering and Conspiracy to Commit Racketeering counts include crimes of Cheating against one hundred and seventy-five (175) victims. As of the date of this report, we have learned the indicted company has pled guilty to the crime of Racketeering. As a result of its guilty plea, the owner of the company has been ordered to sell the company within six months to an unrelated third party , as well as pay restitution to all victims, costs of investigation, costs of prosecution and a $60,000 fine. During the time the business remains open, the selling practices must change (per recommendations from the Department of Insurance) to insure the fraudulent practices are not continued. The twenty-nine licensed agents and customer representatives have all pled guilty to charges ranging from Conspiracy to Commit Racketeering to Petit Theft. One defendant, who we believed was the leader and trainer of the fraudulent practices at the agency, was sentenced to a year in jail with a lifetime suspension of his insurance license. All defendants were placed on a period of probation and ordered to pay costs and perform hours of community service work. Most of the defendants will also receive suspensions of their insurance license ranging from two months to permanent banishment from the industry.

Although only one company has been charged to date for selling insurance under fraudulent means, we have looked at other non-standard agencies and believe deceptive practices are not uncommon in this industry. We are well aware that as long as there is fraud, the consumer will be the one hurt by the necessary increase in costs by the insurance companies.

Section 626.112, Florida Statutes provides that no person shall be, act as, or advertise or hold himself or herself out to be an insurance agent, customer representative, solicitor, or adjuster unless he or she is currently licensed and appointed.

Section 626.112 (8)(b), Florida Statutes does not require an insurance agency to be licensed unless it has pled guilty to an insurance related crime, employs a manager who is under suspension or revocation or operates the agency in violation of the insurance code or in a way that is hazardous to the insurance buying public.

Section 626.112(8)(c), Florida Statutes permits the Department of Insurance to revoke or suspend the agency's authority to do business for improper activities during the period that the agency is licensed.

Section 626.9611, Florida Statutes allows the Department of Insurance to promulgate reasonable rules as necessary to identify prohibited acts, but such rules can not enlarge upon or extend the provisions set forth as unfair or deceptive practices in Section 626.9651, Florida Statutes.

Section 627.733, Florida Statutes requires every owner or registrant of a motor vehicle, required to be registered and licensed in the State of Florida, to maintain an insurance policy for personal injury protection (PIP) and property damage (PD).
Section 626.9541(1)(z) Florida Statutes prohibits the act of sliding which is the practice of:

1. Representing to the applicant that a specific ancillary coverage or product is required by law in conjunction with the purchase of motor vehicle insurance when such coverage or product is not required; or

2. Representing to the applicant that a specific ancillary coverage or product is included in the motor vehicle policy applied for without an additional charge when such charge is required; or

3. Charging an applicant for a specific ancillary coverage or product, in addition to the cost of the motor vehicle insurance coverage applied for, without the informed consent of the applicant.

We recognize that Chapter 626.9541 (1) (z), Florida Statues encompasses a number of the practices we encountered, however it does not cover all the fraudulent activity we discovered.

Typically a consumer shopping for insurance in the non-standard market will call different companies, gather insurance quotes, then respond to the agency that can provide the lowest quote. Once in the door, the consumer purchases car insurance from a licensed insurance agent or customer representative. Rule 4-213.130, Florida Administrative Code allows a customer representative to take insurance applications, give quotes and bind new or additional coverages while they are under the supervision of an appointed licensed agent. The customer may be offered additional optional products, including towing clubs, legal plans and life insurance coverage. Our investigation has revealed a number of different schemes used at the insurance agencies to deceive and manipulate consumers into purchasing these ancillary products they may not want or need. The common fraudulent methods we have seen fall into one of the following categories:

A. Product Included in Cost of Insurance. Interviews of victims and undercover police officers involved in this investigation revealed that a number of them were offered an ancillary product during the course of their insurance purchase, however no additional cost was mentioned. We heard tape recordings of undercover transactions and learned that many insurance agents incorporated the cost of the ancillary product into the initial quote provided to the consumer. Even when the customer requested the bare minimum insurance as required by law, the quote included an increase of $50 to $150 for the ancillary product. If and when the coverages were explained to the consumer, he or she was told the benefits of the optional product were included in the price. The customers were never given insurance quotes that did not include an additional cost for the optional products.

A number of insurance agents we heard from initially believed that as long as the customer was made aware of the benefits they were receiving, it was the responsibility of that customer to later read all the documents and discover the additional costs on his or her own. These same agents later acknowledged that most customers are unfamiliar with insurance requirements, and place their complete trust in their agent, never thinking the insurance agent would take advantage of them. We heard testimony about victims who could barely afford the cost of their insurance, and certainly did not want to be spending additional money on services that were not required.

B. Customer Refused Additional Product. A customer who has rejected an ancillary product, may still leave the insurance agency having purchased one. According to the insurance agents interviewed, even when a customer refused to purchase an ancillary product, the agent was still required to sell some form of optional coverage. As we learned, a large portion of the agency's profit came from the ancillary products, which were often paid in full, whether or not the actual policy was financed (and subject to cancellation for non-payment). We found that if a customer questioned the cost of optional products, there were different answers given to conceal the truth. For example, some agents were trained to advise the customer that if he or she did not wish to purchase the optional product, then they would have to be placed with a more expensive insurance company. Other agents blamed the increase cost on the customer's driving history, without disclosing the cost of the product. One agency we investigated required the customer to purchase an ancillary product in order to get the lowest premium down payment. If the customer refused the optional product, the minimum required down payment increased by as much as 12%.

C. Customer Unaware of Product. There were a number of victims who had no idea they had purchased an optional product, therefore could not even avail themselves of the benefits the product offered. There were a number of victims who learned through our investigation they had purchased a towing plan, yet they already belonged to one such as AAA at the time they purchased the insurance. These victims adamantly stated they would have never knowingly signed up for another towing club, had it been offered.

We found that only one ancillary product had separate forms for the customer to sign, explaining the product's benefits. The other products were typically not explained nor was the customer given an opportunity to question anything extra, as the costs and benefits were included without the consumer being aware. This deception was typically done by the agent shuffling through the paperwork quickly, instructing the insured to "sign here, sign here, sign here", without fully explaining the costs and benefits. Some agents were trained to speak quickly, going through the numerous documents at a rapid pace. Others used techniques to cover up the costs on the paperwork, or divert the consumer's attention away from these items. Undercover law enforcement officers involved in the investigation went to forty-one different insurance agency locations to purchase insurance and to attempt to detect the fraudulent practices. At thirty-one of these locations, investigators, including the insurance commissioner himself, left the insurance agency having unknowingly purchased an ancillary product.

One common theme played throughout the different agencies, regardless of what type of fraud was utilized: If the customer doesn't ask, don't offer any information. Many agents we heard from spoke about being criticized by their superiors for talking too much to the customer and for volunteering information. An agent was never to disclose itemized costs, and if asked about specific prices, often tried to get around answering honestly.

Non-standard insurance agencies generally target consumers who are unable to buy from standard insurance companies due to driving history, age or costs. Our investigation into this area has shown that these consumers were often manipulated and deceived by their insurance agents into buying additional products that were not legally required. It is clear that the fraudulent practices we encountered were not isolated events and not limited to one particular agency.

As long as drivers are required to have insurance to operate motor vehicles in the State of Florida, non-standard insurance agencies will exist to provide insurance to drivers who cannot secure insurance with standard companies. Although we understand the need for the agencies to make a profit, profit should not be achieved by deceptive and fraudulent means. Licensed insurance agents and representatives place themselves in a position of fiduciary duty to the consumers who enter their business looking for guidance in their insurance purchase. Unfortunately, it appears that many insurance agents and customer representatives take advantage of their client's trust, and ultimately their wallet.

It is imperative that consumers be given full disclosure of mandatory and optional benefits that exist. This disclosure must include any additional costs that the insured is not required by law to pay. The easiest way to insure compliance is to require separate transactions for the mandatory and optional purchases. Although this may inconvenience some agencies, we certainly believe that honesty and law-abiding behavior should always take precedence over profit motives.

Although our investigation was limited to the practices of non-standard insurance agencies, we believe our recommendations will aid consumers dealing in the standard market as well. In order to prevent licensed insurance agents and customer representatives from defrauding and taking advantage of customers, we recommend the following:

To the Legislature:

1. Increase the penalty for violations of Section 626.9541 (1)(z) from a second degree misdemeanor to a third degree felony. Although the amount taken may be small, when it is committed by a person in a position of trust or fiduciary duty, we believe the penalty should
increase.

2. Require insurance agencies to be licensed, therefore subject to penalties of revocation and suspension of conducting business if violations occur.

3. Prohibit insurance agencies from requiring customers to choose between purchasing an ancillary product or paying a higher down payment.

4. Require insurance agencies to sell ancillary products under the following conditions:

a. Automobile insurance shall only be sold through licensed and appointed general lines agents. Automobile insurance may also be sold by licensed and appointed customer representatives in accordance with Part II of Chapter 626, Florida Statutes, and Rule 4-213, Florida Administrative Code; and

b. The insurance quote shall not include the charge for, or in any way reflect the cost of, any ancillary product(s); and

c. No ancillary product(s) shall be solicited or sold until the automobile insurance transaction has been completed. A completed insurance transaction shall include the completion of an automobile insurance application, the issuance of an automobile insurance binder, and the receipt of payment or down payment for the automobile insurance policy; and

d. Any solicitation of an ancillary product(s) must occur as a separate transaction and documented as such.

e. The individual who solicits the sale of ancillary products shall make an oral statement to the consumer that the ancillary product(s) are not required by law, and are not required by the insurance company or the insurance agency in order to purchase insurance. The individual who solicits the sale of ancillary products shall disclose the exact dollar charge of each ancillary product solicited and/or purchased; and

f. The agency shall issue a separate bill and receipt for the automobile insurance, and a separate bill and receipt for any ancillary products purchased.

To the Department of Insurance:

Create one standardized form for all insurance companies to use when a customer requests to purchase the minimum insurance necessary as required by law.THIS REPORT IS RESPECTFULLY SUBMITTED to the Honorable N. Sanders Sauls, Presiding Judge of the Fourteenth Statewide Grand Jury, this ______day of November, 1998.

___________________________
EDWARD D'ARCY ADAMS III
Foreperson
Fourteenth Statewide Grand Jury of Florida

I, MELANIE ANN HINES, Statewide Prosecutor and Legal Advisor, Fourteenth Statewide Grand Jury of Florida, hereby certify that I, as authorized and required by law, have advised the Grand Jury which returned this report on this _____ day of November, 1998.


___________________________
MELANIE ANN HINES
Statewide Prosecutor
Legal Advisor
Fourteenth Statewide Grand Jury of Florida


I, OSCAR R. GELPI, Chief Assistant Statewide Prosecutor and Legal Advisor, Fourteenth Statewide Grand Jury of Florida, hereby certify that I, as authorized and required by law, have advised the Grand Jury which returned this report on this _____ day of November, 1998.

___________________________
OSCAR R. GELPI
Chief Assistant Statewide Prosecutor
Assistant Legal Advisor
Fourteenth Statewide Grand Jury of Florida

I, SUZANNE L. ROSSOMONDO, Deputy Chief Assistant Statewide Prosecutor and Legal Advisor, Fourteenth Statewide Grand Jury of Florida, hereby certify that I, as authorized and required by law, have advised the Grand Jury which returned this report on this _____ day of November, 1998.

___________________________
SUZANNE L. ROSSOMONDO
Deputy Chief Assistant Statewide Prosecutor
Assistant Legal Advisor
Fourteenth Statewide Grand Jury of Florida

THE foregoing Report on Fraud in the Non-Standard Insurance Industry was returned before me this _____ day of November, 1998, and is hereby sealed until further order of this court, upon proper motion of the Legal Advisor.

Further, upon the Legal Advisor's oral motion for the disclosure for the purposes of furthering justice of the Report on Fraud in the Non-Standard Insurance Industry, the Legal Advisor is ordered to disclose the testimony and proceedings recounted in the foregoing document in furtherance of the criminal investigative and civil administrative responsibilities of the Fourteenth Statewide Grand Jury.

___________________________
N. SANDERS SAULS
Presiding Judge
Fourteenth Statewide Grand Jury of Florida