Fraud raises everyone's premium, so the law treats it seriously and expects agents to help spot it. Common warning signs include a coverage increase shortly before a large loss, a big claim soon after the policy starts, and no proof that costly items were ever owned. Red flags suggest fraud; they do not prove it.
Signing the claim form can itself be a crime. A person who declares under penalty of perjury and willfully states as true a material matter he knows is false is guilty of perjury (Penal Code §118). Insurers' application and claim forms must also carry a printed warning that anyone who knowingly presents false or fraudulent information to obtain or amend coverage, or to make a claim, is guilty of a crime and may be subject to fines and confinement in state prison (§1871.2).
California's efforts to combat fraud include:
The Department of Insurance has a Fraud Division that enforces the Penal Code fraud sections.
Admitted insurers, unless exempted, must keep a continuous unit to investigate possible fraudulent claims.
An Arson Information Reporting System lets insurers and agencies share arson case data.
Insurance claims analysis bureaus must give the Commissioner their California data without fee or charge.
Insurers report covered auto thefts and salvage total losses, and must notify the district attorney and the Fraud Division of suspected workers' compensation fraud.
What a licensed agent should do when fraud is suspected: record the facts and pass them to the insurer or the proper fraud authorities. Do not accuse the client, and do not decide the claim yourself. Section 1872.5 protects insurers and their employees and agents from civil liability for libel, slander or similar torts when they provide this information without malice. The protection depends on the absence of malice, not on a later conviction.