Know Your Regulator: The Podcast that Inspires You to Engage

Inside TDI's Fraud Unit: Protecting Texas from Insurance Crimes

• Team Bertolino • Season 1 • Episode 41

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Ever wondered how Texas fights insurance fraud? In this eye-opening conversation, Rick Watson, Chief Prosecutor and Fraud Counsel for the Texas Department of Insurance's Fraud Unit, pulls back the curtain on a specialized law enforcement agency most Texans never knew existed.

Watson reveals the remarkable evolution of TDI's Fraud Unit since its 1991 founding, highlighting its unique embedded prosecutor program that places specialized attorneys in district attorney offices across Texas. This innovative approach—the only one of its kind in the nation—has yielded impressive results: over $96.7 million in court-ordered restitution over the past five years. The unit handles everything from consumers filing false vehicle theft claims to insurance professionals misappropriating premium payments, with cases ranging from $2,500 misrepresentations to multi-million dollar schemes.

Perhaps most surprising is Watson's revelation that many young people don't even consider insurance fraud wrong. "A lot of them said no," Watson explains when describing a study where millennials were asked if lying to an insurance company was criminal. "The majority didn't think it would even be a crime." This perception gap partially explains the growing caseload—from 14,180 referrals in 2020 to over 20,000 in 2024. Despite these numbers, only about 100 cases annually result in criminal charges, as prosecutors must prove actions were "knowingly and intentionally" fraudulent rather than honest mistakes.

For insurance professionals, the message couldn't be clearer: maintain honesty with consumers, stay current on continuing education, and report suspected fraud immediately. Under Texas law, anyone suspecting insurance fraud must report it—but they receive legal immunity from civil liability when doing so. Whether you're a licensed professional or concerned consumer, understanding how fraud impacts the industry benefits everyone.

Curious about reporting suspected fraud? Visit tditexas.gov or call 1-800-252-3439 to connect with TDI's Fraud Unit.
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Rick Watson is the Chief Prosecutor and Fraud Counsel of the Texas Department of Insurance, Fraud Unit. Rick is responsible for supervising embedded TDI prosecutors across the state and acts as the Fraud Counsel for the Fraud Unit. Rick has over two decades of prosecutorial experience including being a prosecutor in the Harris County District Attorney’s Office, Bexar County District Attorney’s Office, San Diego County District Attorney’s Office, and the Dallas County Criminal District Attorney’s Office. Rick attended Southern Methodist University graduating with a Juris Doctorate and a master’s degree in economics in 1998. 
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Get more information, details and resources on Know Your Regulator - https://www.belolaw.com/know-your-regulator




Speaker 1:

This podcast is for educational purposes only, does not constitute legal advice and does not create an attorney-client relationship. If you need legal assistance about a legal problem, contact an attorney.

Speaker 2:

Welcome to another episode of Know your Regulator, the podcast that inspires you to engage. I am your host, Simone Murphy, and co-hosting with me today is Senior Associate from the Bertolino Law Firm, LaWanna Acklin. Hey, LaWanna.

Speaker 1:

Hello there.

Speaker 2:

How are you? I am doing good. I am really excited to introduce this episode's topic. Today's discussion is all about the Texas Department of Insurance's fraud unit, what it does, how it works and what license holders need to know to stay compliant.

Speaker 1:

Absolutely. And today we have a very special guest. We have Rick Watson. He is the Chief Prosecutor and Fraud Counsel for the Texas Department of Insurance's Fraud Intake Unit. And, rick, thank you for joining us today. How are you?

Speaker 3:

Great. Thank you, Simone and Luana, for having me on. I'm really happy to be here.

Speaker 2:

Absolutely. We are excited to have you. To start off, if you could just give us a kind of brief overview of TDI's Fraud Unit, how did this program get started and how does it function today?

Speaker 3:

Yeah well, the insurance fraud unit started back in 1991. At that point it was a law enforcement agency that was entered into the regulatory department of insurance. At that point they had investigators that would investigate fraud, referrals, and then, beginning in 2000, they started a program where we would have prosecutors embedded into district attorney's offices, which started in Dallas. That was the first one, and then TDI. Our purpose is to investigate referrals and insurance fraud having to do with any fraud having to do with the insurance business.

Speaker 1:

Wow and Rick, if you can just talk to us about your role as chief prosecutor and how the program has evolved over the last three decades.

Speaker 3:

Well as the chief prosecutor, I supervise the embedded prosecutors and the embedded prosecutors are prosecutors that are working in specific counties. We have a prosecutor in Bexar County, one in Harris County there's typically two, but we have just one there right now. I work the Travis County cases that come into that office and we have a prosecutor in Tarrant County and one in Dallas County and what that means is being an embedded prosecutor. What we do is we're sworn in like any other district attorney, assisted district attorney, but we only work on specifically for the Department of Insurance cases, but also as the Department of Insurance. We also help other counties as well. I mean over. I think we've helped out multiple counties. The US Attorney's Office we've helped them out with. You know subject matter expertise and insurance fraud. We've also worked in Collin County, kendall County, swisher County and, like I said, the US Attorney's Office providing expertise in Texas law for insurance fraud.

Speaker 1:

Oh wow, that is great. Specifically, what are some of the milestones or achievements that the Fraud Intake Unit they've seen since its inception?

Speaker 3:

Well, you know, the Fraud Unit, like I said, has been started since 1991. And it is consistently grown as far as the amount of referrals that we get. And since we've started added prosecutors, we've went from one prosecutor up to six. It's fluctuated some At one point there was only went back to one and that was only me, and then we that was during COVID We've had some leave but we're back up to six now and we're trying to hire another one on top of that for Harris County.

Speaker 3:

But the biggest milestone is just the amount of cases or referrals that we can work and that we can look at. I mean, every year it just gets exponentially more of the referrals that we get. And so the way it's set up is under 701 of the insurance code, the commissioner is given certain rights and as part of that code is that anyone who suspects insurance fraud has to report that to our department. It's reviewed by a couple of analysts, A law enforcement person looks at it and then if they feel like we should go further, it goes to a supervisor who then looks at it and then if they feel like we should go further, it goes to a supervisor who then looks at it and then if it warrants being investigated by an investigator, that is done. And then if it's appropriate to send it on to a district attorney's office, then we do that as well.

Speaker 3:

And some of the numbers back in the fiscal year 2020, we received 14,180 referrals. That one year, yeah. And in this past fiscal year of 2024, we received 20,356. So, yeah, every single one of those is reviewed by an analyst and then the appropriate ones are moved on. And another milestone is over the last five years, we've collected $96.7 million has been court-ordered in restitution based on the cases that have been prosecuted through our investigator or our prosecutors and through the US Attorney's Office, with our help.

Speaker 1:

Wow, that's huge $97 million.

Speaker 3:

Yes, $96.7. It's a lot of fraud going on.

Speaker 2:

Yeah.

Speaker 3:

Yes.

Speaker 2:

I kind of want to ask, to piggyback off that answer, this uptick in the referrals. Do you think that that is? Do you have an idea of why that might be?

Speaker 3:

Do you think that people are just a little bit more aware of what fraudulent activity looks like and how to report that? Well, I think there's. You know, there's always going to be the growth of the population of Texas. That's, that's huge. And then I mean, I've read studies where they've talked to young people, you know, like millennials, and they asked them it's like well, is insurance fraud wrong? A lot of them said no. The majority of them didn't think it would even be a crime to lie to an insurance company. You know about a material misrepresentation about an insurance claim. So I think it's more of awareness and also the population growth, I mean, and under the law it's required, you know, if you suspect insurance fraud you're required to report it.

Speaker 2:

That makes sense. Yeah, yeah. Well, I'm sure that within you know, these last 30 years there's been a lot to see, and maybe more than just once or twice. Can you talk to us about the most common types of fraud that your team investigates?

Speaker 3:

Well, I've been a prosecutor now for a little over 25 years and most of that has been white collar crime. The very first felony trial I ever tried was in 2002. And it was an insurance fraud case. And it was someone who claimed his vehicle had been stolen when he abandoned it at a shop and just didn't go back and get it Called. The police said it was stolen, reported it stolen to the insurance company.

Speaker 3:

Yeah, that is like the basic kind of a case that we get. I mean, a lot of times the fraud that we get are people filing false claims about their vehicles or about their home or saying that they were injured in an accident when they weren't. We get a lot of cases where people are forging documents and sending those in in support of the claim and when the insurance companies do a bit of follow up find out that these things are completely forged. And that's on the insured side. On the insurer side, we get cases periodically, well fairly regularly, of agents or adjusters who have done illegal things, committed fraud, taking money for policies and never remitting it to the insurance company, forging documents, going in and getting checks on an active claim, writing checks for their own personal use. I mean it's a wide gamut, I mean it's anywhere from $2,500 is the level that makes it a felony here in Texas. Up to we've had some that are millions of dollars.

Speaker 2:

Yeah.

Speaker 1:

That is eye-opening, to say the least. You said something that was very interesting to me. You said that you've collected your unit collected almost $97 million, and you also mentioned the US Attorney's Office. So do you work, does your union work, with the federal government and, if so, how often you work?

Speaker 3:

does your union work with the federal government and if so, how often? Well, the amount of money that I was talking about is court ordered restitution and some of that is paid up front. If there's a way to get the money up front, we generally do that, but a lot of times they go on probation and it gets ordered. We've had prosecutors from our units work with US Attorney's Office on specific cases. We've had a lot of our investigators work with the federal agencies and with the US Attorney's Office on specific cases. I mean, we have 20 investigators so we're kind of limited as to resources that we have to be able to investigate these cases. So sometimes when we get one that is really big, then we'll ask the US Attorney's Office or some federal agency to work with us or to take over the investigation with our expertise.

Speaker 1:

Excellent. So you also mentioned that anyone and just correct me if I misunderstood you they're required to report insurance fraud. So with that, how do these cases come to your attention? Where do the majority of the cases come from that? You end up the analysts. They analyze the case and then it matriculates through the court system.

Speaker 3:

Well, the way that it gets to the Department of Insurance is sometimes the enforcement attorneys will let us know that something's going on, but the majority, the overwhelming majority of cases that we get. We have a reporting system on our website, which is tditexasgov, and there's just a button you click and then it takes you right to where you can file a fraud report. Then we also have a 1-800 number, which is 1-800-252-3439. So, yes, anyone can make a fraud report there, and we get a lot of them from consumers and we also get a lot of them from the insurance industry as well.

Speaker 2:

Wow, good to know. Yeah, this is my favorite fact about this whole episode and this whole topic, but I want our viewers to know and I kind of want to talk about this. I think it's really good information to know. So, although the fraud unit works very closely with the Texas Department of Insurance, it's a separate law enforcement agency. Can you talk to us a little bit about how the cases that y'all prosecute are different from the cases that TDI prosecutes?

Speaker 3:

Well, the cases that we get are all criminal referrals. So ours would be we investigate the violations of criminal laws. So it would be the insurance fraud in the penal code or it would be some other section of the penal code, and then sometimes it's the. There's other codes that you know we will have offenses that we prosecute out of it. But on the enforcement side it's purely civil enforcement. So they do the regulation of insurance agents, of adjusters, anyone who's licensed for insurance. They do that. We only do the criminal portion of any interaction with the agents or with the industry.

Speaker 2:

Gotcha and I want to make sure our viewers know that is not just limited to insurance professionals. We're talking about professionals across the board who deal with insurance. You know any type of insurance fraud would go to you guys.

Speaker 3:

Yes, and that's the authority that we use, for that is under the insurance code of 701. And since it is required for people to report incidents of, or suspected insurance fraud, there's also a section in there for immunity. So anyone who does that, they're immune from civil prosecution for slander or libel if they are just merely reporting it to the Department of Insurance or to a police agency. So there is some protections for people who come forward and point out that there is suspected insurance fraud.

Speaker 2:

That's great.

Speaker 1:

It's great to know. Oh, absolutely, that's great. It's great to know. I've always understood that Texas's insurance laws are the most stringent in the country. What do you say in comparison, maybe, to other jurisdictions? If you're working with the federal government, how do our laws stack up with other laws in the country as far as protecting the public from bad actors in insurance?

Speaker 3:

Well, I can't speak to the enforcement side. My understanding is that from the enforcement side, texas is very stringent compared to other states, but as far as criminal prosecutions they're pretty much all the same. I was a prosecutor in California for three years. I was in the San Diego District Attorney's Office.

Speaker 3:

Insurance fraud it seems like everywhere I've ever been, insurance fraud just keeps pulling me in, even though I wasn't working for the Department of Insurance. It just seemed to. You know, it chose me. I didn't choose it and I just happened to be there from Florida, louisiana, a lot of other places and they're very similar. None of them have, as far as I'm aware, none of them have the embedded prosecutors like we do. As far as I know, we're the only state that has the Department of Insurance pay for insurance. Well, for Department of Insurance embedded prosecutors to specifically work on their cases. We're also there to help out with other cases as well, but primarily our duties are to make sure that the Department of Insurance cases are giving the you know the work that they need and that they are handled correctly.

Speaker 1:

Okay, wow. So yet another question what can licensing professionals do to avoid engaging in what our laws state are fraudulent activities?

Speaker 3:

Well, as far as the criminal laws, just don't do anything that violates the criminal law, because you don't want to come, you don't want to be in my section of the building. I mean. As far as the enforcement side, like I said, I don't really do that that much I mean, but I would suggest that you know you're always honest with consumers and with the Department of Insurance, you know and you keep up with your continuing education and make sure that you do everything that you're obligated to do with your license. As long as you don't violate the law and do something that is fraudulent, then it would only be an enforcement issue if something were to come up.

Speaker 2:

Awesome. Yeah, definitely. Being honest is so important. Especially as a license holder, You're held to a higher standard. You've got to be responsible and be honest and forthcoming. We've talked about it in previous episodes that it's so much better to just tell the truth, because later on down the line you're really trying to cover up that lie and it just gets ugly. Yeah, absolutely.

Speaker 3:

That does happen in our cases a lot, where agents have done something fraudulently. They'll accept money and, for whatever reason, they don't bind a policy, and then if the person ends up filing a claim, then they find out that they don't have a policy and then they're out there without coverage, so they're stuck handling themselves. That is something that we see quite often. That is something that we see quite often.

Speaker 2:

I would say that's probably something that we see here a lot too is, you know, the, the. I didn't, I didn't think that was going to happen, or I, you know, you're trying to make sure that doesn't happen. And between that time where you're, you know, trying to figure out what your next move is that happens, and now your whole, the whole plan you've had, has fallen apart. And had you just been honest in the beginning, or maybe just not done the criminal activity in the first place, you wouldn't have, you know, ended up there.

Speaker 3:

So yeah, yeah, and there is a big distinction between the two. I mean for for me to be involved in it, for to be a criminal act, it has to be knowingly and intentionally. So if someone just makes a mistake and it's something that's inadvertent and they didn't intend to do, yeah, that would not be a violation of the criminal law. That would just be something on the enforcement side.

Speaker 2:

Yeah, and that would be really determined within that kind of investigative period right, where you guys first get that referral and then you're kind of taking a look at it and determining, I guess, whether it was or wasn't, you know, intentional.

Speaker 3:

Yeah, and out of the 20,000, I think that we got last year, I think only around 100 of those ended up with criminal prosecutions out of the 20,000.

Speaker 1:

Oh, wow yeah for various reasons. Oh, that's super nice. That's good to know.

Speaker 2:

That's great. Well, we've talked about it a little bit so far in this episode, but I really want to drive it home. What can a license holder do if they suspect fraudulent activity in their industry?

Speaker 3:

Well, the main thing is, if you suspect that there's any kind of fraud, report it. I mean, contact the Department of Insurance by the website or by the 1-800 number that I gave and report that and document it and make sure that you're making us aware so that we can investigate that and see if there's anything that can be done. I mean, that's the main thing, and always be honest with your consumers. That's the thing I would tell everyone.

Speaker 2:

Yeah, great advice, Absolutely Well. Thank you, Rick, for joining us this afternoon and congratulations. I think the fraud unit celebrated its 30th anniversary 20th of the embedded prosecutors. Gotcha, ok, yeah, so well. Congratulations to the fraud unit on its 20th anniversary of the embedded prosecutors. Gotcha, okay, yeah, so well. Congratulations to the fraud unit on its 20th anniversary of those embedded prosecutors. It's very cool.

Speaker 3:

Yeah, we have a very, very good team right now and I'm I stepped in as the chief and a fraud council at a good time. Good, and everyone is doing a really good job.

Speaker 2:

Well, that's fantastic. Thank you, guys for protecting us Texans and keeping our you know, our industries clean and free of fraud. Before we let you go, I do want to see if we can get, maybe, some final advice. What would be your key piece of advice for our listeners, your key piece of advice for our listeners.

Speaker 3:

Well, for anyone who's licensed is, like I mentioned before, just make sure you keep up with continuing education to make sure, on top of what the latest laws are, what the latest regulations are and if you see fraud reported.

Speaker 1:

Yes, absolutely See something, say something.

Speaker 3:

Yes, ma'am, yeah.

Speaker 1:

Excellent. Thank you so much, Rick. This was an excellent conversation.

Speaker 3:

Oh, you're welcome. Thank you for inviting me. I really enjoyed this.

Speaker 2:

You are so very welcome and thank you to our viewers and listeners for tuning in. To learn more about TDI's fraud unit, you can visit tditexasgov, or visit the link below in our description, and for more information on the ever-evolving landscape of professional regulations, you can visit our website, also linked in the description below. Until next time, stay inspired and continue engaging with your regulatory agency. Know your Regulator the podcast that inspires you to engage.