AUGUSTA – Insurance fraud is hard to measure, but statistics compiled by the Bureau of Insurance indicate it is growing in Maine, and Sen. Lisa Marrache, D-Waterville, has introduced legislation to create a fraud division to focus on reducing costs to both businesses and consumers by prosecuting the crime.

“We need it,” she said of the fraud division. “A lot of states have it, and we do not. There are a lot of people out there gaming the system and we need to have a unit dedicated to going after those people.”

Marrache, a doctor when not serving in the Legislature, said insurance fraud is found among all types of insurance, from auto to health and everything in between. She said only workers’ compensation insurance fraud has a dedicated effort.

“Fraud affects all of us,” she said. “All of our insurance premiums are affected by this in both business and as consumers.”

A study released a little more than a year ago by the Bureau of Insurance supported the creation of a fraud unit. It pointed to substantial increases in insurance fraud. For example, the number of cases of auto insurance fraud reported to the Bureau by insurers increased from 262 in 1999 to 1,058 in 2005. Property fraud increased from 89 cases in 1999 to 288 in 2005. Health insurance fraud has increased from 72 cases in 1999 to 369 in 2005.

“That is really only the tip of the iceberg,” said Kevin Surette, president of the Maine Licensed Private Investigator’s Association, a trade group that is pushing for passage of the legislation. “I see it in my work every day and so do our other members. This fraud costs everybody in higher insurance costs.”

Surette said Maine is the only state in New England that does not have a fraud unit. He said in other states the fraud units not only prosecute fraud, but act as a deterrent to fraud.

That assertion is backed up by the bureau study, which sought comment from other New England states. The New Hampshire fraud agency director told the bureau that Maine may be attracting fraud by not having a fraud unit. According to the National Conference of State Legislators, 40 states have dedicated fraud bureaus.

Marrache said her legislation is based on the draft bill developed by the bureau in its report. She said the new fraud division would have a prosecutor, investigators and support staff. She said the office would be funded by an assessment on insurance policies.

“I am not sure what it would be exactly,” she said, referring to the assessment. “But it depends on what we settle on for staffing.”

Deputy Insurance Superintendent Judy Shaw said a ballpark estimate, based on a minimum staffing of four, would be about $300,000 a year. She said while the bureau “stands by” its report recommending that the division be created, the agency will testify in the “neither for nor against” category at next week’s public hearing.

“This is really a policy question for the Legislature to decide,” she said. “There is a major push to reduce head count in state government and we don’t think we should be recommending new positions. It really is a matter for the Legislature to decide if it warrants new positions.”

In his report to the Legislature last June, then Insurance Superintendent Alessandro Iuppa said the increases in some insurance fraud are “alarming” and that national studies indicate consumers are paying for billions of dollars of fraud every year in higher premiums.

“We would observe that there is an extensive body of literature noting the substantial cost of insurance fraud to Americans,” he wrote.

Shaw said the bureau does refer cases that it becomes aware of, from insurance companies and others, to the Attorney General’s Office for investigation and prosecution. She said the attorney general has a lot of competing priorities, and fraud prosecution has to compete with all the other crimes that must be investigated and prosecuted.

“That’s one reason why we need a dedicated fraud unit,” Marrache said. “There are competing needs and we need to address this problem.”

The proposal goes before the Legislature’s Insurance and Financial Services Committee next Tuesday afternoon.