Fraudulent Claims and Nitpicky Insurers
- (pp. 2900-2917)
AbstractInsurers have the reputation of being bad payers who nitpick when- ever an opportunity arises. However, this nitpicking activity has a positive impact on their auditing strategy since auditing may prove profitable when claims are not fraudulent. We show that reducing the indemnity payments of audited claims induces a lower fraud rate at equilibrium and that some degree of nitpicking is socially optimal when insurance fraud is a concern. Its remains optimal even if it induces adverse effects on policyholders' moral standards.
Citation2014. "Fraudulent Claims and Nitpicky Insurers." American Economic Review, 104 (9): 2900-2917. DOI: 10.1257/aer.104.9.2900
- D86 Economics of Contract: Theory
- G22 Insurance; Insurance Companies; Actuarial Studies
- K12 Contract Law
- K42 Illegal Behavior and the Enforcement of Law