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Contract design and insurance fraud: an experimental investigation

Frauke von Bieberstein () and Jörg Schiller ()
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Frauke von Bieberstein: Universitaet Bern, Institute for Organization and HRM
Jörg Schiller: Universitaet Hohenheim, Institute for Health Care & Public Management

Review of Managerial Science, 2018, vol. 12, issue 3, 711-736

Abstract: Abstract This paper experimentally examines the impact of contract design on insurance fraud. We test how fraud behavior varies for insurance contracts with full coverage, a straight deductible or claim-dependent premiums (bonus-malus contracts), in a setup where rational and selfish individuals have an incentive to always claim the maximum possible indemnity. We find a substantial impact of contractual arrangements: Deductible contracts lead to a greater extent to claim build-up than full coverage contracts. In contrast, bonus-malus contracts that entail the same net gains from fraud as deductible contracts do not increase claim build-up. Thus, our results indicate that bonus-malus contracts may be superior to deductible contracts for behavioral reasons.

Keywords: Insurance fraud; Experiment; Contract design; Deductible; Bonus-malus (search for similar items in EconPapers)
JEL-codes: G22 C91 D03 (search for similar items in EconPapers)
Date: 2018
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