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Providers'affiliation, insurance and collusion

Jean-Marc Bourgeon (), Pierre Picard and Jerome Pouyet

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Abstract: This paper provides a theoretical analysis of the benefits for an insurance company to develop its own network of service providers when insurance fraud is characterized by collusion between policyholders and providers. In a static framework without collusion, exclusive affiliation of providers allows insurance companies to recover some market power and to lessen competition on the insurance market. This entails a decrease in the insured's welfare. However, exclusive affiliation of providers may entail a positive effect on customers' surplus when insurers and providers are engaged in a repeated relationship. In particular, while insurers must cooperate to retaliate against a fraudulent provider under non-exclusive affiliation, no cooperation is needed under exclusive affiliation. In that case, an insurer is indeed able to reduce the profit of a malevolent provider by moving to collusion-proof contracts when collusion is detected, and this threat may act as a deterrent for fraudulent activities. This possibility may supplement an inefficient judicial system: it is thus a second-best optimal anti-fraud policy.

Keywords: Insurance; Affiliation/vertical relationships; Fraud (search for similar items in EconPapers)
Date: 2008
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00366079
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Published in Journal of Banking and Finance, Elsevier, 2008, 32 (1), pp.170-186. 〈10.1016/j.jbankfin.2007.09.012〉

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00366079

DOI: 10.1016/j.jbankfin.2007.09.012

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