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The Effectiveness of Insurance Fraud Statutues: Evidence from Automobile Insurance

Robert E. Hoyt, David Mustard () and Lars S. Powell
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Robert E. Hoyt: University of Georgia
Lars S. Powell: University of Arkansas

Risk and Insurance from EconWPA

Abstract: Insurance fraud, which adds an estimated $85 billion per year to the total insurance bill in the U.S., is an extremely serious problem for consumers, regulators, and insurance companies. This paper analyzes the effects of state legislation and market conditions on automobile insurance fraud from 1988 to 1999, a period representing a substantial increase in the enactment of antifraud legislation. Our empirical results show that the laws have mixed effects; two laws have no statistically significant effect on fraud. The strongest evidence of fraud mitigation effects are associated with mandatory Special Investigation Units, classification of insurance fraud as a felony, and mandatory reporting of professionals to licensing authorities. However, laws requiring insurers to report potentially fraudulent claims to law enforcement authorities increase fraud, which may reflect some substitution from more efficacious private efforts to less productive state activity. Many underlying characteristics of the market also affect fraud.

Keywords: Insurance Fraud; Automobile Insurance; Moral Hazard (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ias and nep-reg
Date: 2005-01-05
Note: Type of Document - pdf; pages: 35
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpri:0501001

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