Why Some Fraud Referrals Get Closed — and Why It Discourages Investigators

Fraud investigators and adjusters understand the importance of submitting referrals. It’s often the only way to elevate a suspicious claim, protect policyholders, and meet statutory requirements. Yet even well-documented referrals sometimes return with a familiar response: “Closed — insufficient evidence.”

Over time, these outcomes can be discouraging—not because investigators expect every referral to lead to prosecution, but because many cases feel strong enough to warrant at least a second look.

So why does this happen?

1. Regulators Are Overwhelmed Before a Case Even Begins

A few weeks ago, a regulator wrote to a member of our team with a statement that perfectly captures the challenge: “We receive thousands of referrals of suspected fraudulent insurance transactions annually from insurance companies fulfilling statutory reporting requirements as well as from other sources. Only a select number of referrals can be accepted as cases and be investigated.”

This is the heart of the issue. State anti-fraud units, in most jurisdictions, are:

• Understaffed

• Overloaded

• Mandated to prioritize certain types of crimes

• Limited in investigative resources

• Operating under statutory timeframes

With thousands of referrals coming in each year from carriers, agencies, consumers, law enforcement, and other sources, only a small fraction can realistically be reviewed in depth. The result? Even strong, well-supported referrals may never move past the initial screening.

2. The “30-Second Scan” Reality

Investigators inside state fraud bureaus have openly acknowledged that they often have 30 seconds or less to scan a referral before deciding: move to case review or reject and close.

That is not a reflection of quality, it’s a reflection of volume. In this environment, anything that is unclear, incomplete, low-dollar, lacking immediate prosecutorial value, or overshadowed by violent, high-dollar, or organized fraud cases simply won’t make it to the next step. Investigators know this, and that knowledge contributes to the frustration.

3. Why Carriers Submit Referrals (Even When They Know They May Be Closed)

Many people outside the industry don’t realize that carriers often submit fraud referrals because:

• It is a statutory requirement

• Carriers must report suspected fraud whether or not they believe the regulator will prosecute

• It satisfies compliance obligations

• Internal compliance departments track referral submission to demonstrate regulatory adherence

• The referral serves as documentation

• A referral protects the company if questioned later by auditors, regulators, or litigants

• It shifts the record of suspicion to the state

Even if the case is closed, the fact that it was reported matters. None of this is wrong. None of this is bad. None of this means the carrier doesn’t care. It simply reflects the structure of the system.

Referral ≠ Guaranteed Investigation.
Referral = Compliance + Documentation + Disclosure.

Submitting a referral is an essential step in meeting regulatory obligations, but it does not automatically trigger an investigation. A referral ensures compliance, provides thorough documentation, and discloses relevant details to the appropriate authority. Whether a case moves forward depends on the regulator.

4. Why This Discourages Investigators

When investigators spend hours:

• Documenting inconsistencies

• Gathering records

• Summarizing findings

• Completing referral forms

• Drafting narratives

• Organizing evidence

…only to receive a quick “insufficient evidence” closure, it can feel demoralizing. When this happens repeatedly, investigators may begin to feel their work goes unnoticed, their effort doesn’t matter, referrals are “just paperwork,” or the system only acts on extreme cases. This is a very human response and a very common one in SIU and claims operations.

5. Fraudsters Know How Limited Enforcement Can Be

This is the part rarely discussed publicly. Fraudsters especially opportunistic ones—understand that referral volume is high, regulator bandwidth is limited, lower-dollar cases don’t get prioritized, documentation can be manipulated, and first-time offenders often aren’t prosecuted. When claimants or insureds believe “Nothing will happen to me,” the likelihood of repeat behavior increases. This is why early detection, clear documentation, and strong internal investigative review before a referral is sent matter so much.

6. What Investigators Can Control (And What They Can’t)

Investigators can control:

• Quality of documentation

• Clarity of narrative

• Completeness of evidence

• Consistency of timelines

• Internal fraud trend tracking

• Detailed pattern recognition

• Strong internal fraud reviews

Investigators cannot control:

• Regulator caseload

• Prosecutorial priorities

• Staffing limitations

• Case thresholds

• Statutory resource constraints

Understanding this distinction reduces frustration and helps focus energy where it has the most impact.

7. Closing Thought: Why Your Work Still Matters

Even when referrals are closed, your effort is not wasted.

Your documentation:

• Establishes a record

• Supports future cases

• Informs internal controls

• Protects the carrier

• Identifies repeat offenders

• Strengthens future investigative reviews

• Build institutional knowledge

• Contributes to trend analysis

Fraud prevention is not one referral; it is a cumulative process. Every well-documented referral strengthens the industry even when the outcome isn’t what we hoped for