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Fraudulent claims and nitpicky insurers

Jean-Marc Bourgeon () and Pierre Picard

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Abstract: Insurers have the reputation of being bad payers who nitpick whenever 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.

Keywords: Insurance Fraud; audit; nitpicking (search for similar items in EconPapers)
Date: 2014
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Published in American Economic Review, American Economic Association, 2014, 104 (9), pp.2900-2917. 〈10.1257/aer.104.9.2900〉

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Journal Article: Fraudulent Claims and Nitpicky Insurers (2014) Downloads
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DOI: 10.1257/aer.104.9.2900

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