Economic Analysis of Insurance Fraud

Pierre Picard ()
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Pierre Picard: CREST-Ecole Polytechnique

A chapter in Handbook of Insurance, 2025, pp 259-323 from Springer

Abstract: Abstract We survey recent developments in the economic analysis of insurance fraud. The chapter first sets out the two main approaches to insurance fraud that have been developed in the literature, namely, the costly state verification and the costly state falsification. Under costly state verification, the insurer can verify claims at some cost. Claims’ verification may be deterministic or random, and it can be conditioned on fraud signals perceived by insurers. Under costly state falsification, the policyholder expends resources for the building-up of his or her claim not to be detected. We also consider the effects of adverse selection, in a context where insurers cannot distinguish honest policyholders from potential defrauders, as well as the consequences of credibility constraints on antifraud policies. Then we focus our attention on the risk of collusion between policyholders and insurance agents or service providers, and on how competition interacts with fraud in the insurance market. Finally, we analyze how contract law provisions contribute to economic efficiency when there is a risk of fraud.

Keywords: Fraud; Audit; Verification; Falsification; Collusion; Build-up (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-69674-9_9

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DOI: 10.1007/978-3-031-69674-9_9

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