Insurance Fraud Estimation: More Evidence from the Quebec Automobile Insurance Industry

Louis Caron and Georges Dionne ()
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Louis Caron: HEC Montreal, Canada Research Chair in Risk Management

No 96-2, Working Papers from HEC Montreal, Canada Research Chair in Risk Management

Abstract: This article follows a previous study on insurance fraud in the Quebec automobile insurance industry (Dionne and Belhadji, 1996). Results from that research showed that 3 to 6.4% of all claim payments (excluding those for "glass damage only") contained fraud, representing 28 to 61 million dollars in 1994-1995. This evaluation was a minimum since it was limited to observed fraud only. In this paper, we apply a statistical method to estimate the total fraud level in the industry for the same period. Our results show a multiplicative factor of 3.4% of fraudulent files found in Dionne and Belhadji, which means that total fraud payments ranged from 96.2 to 208.4 million dollars in 1994-1995. Our Best Guess Estimator yields roughly a 10% fraud rate or about 113.5 million dollars. An interesting corollary in this finding is that the claim adjusters who participated to the survey (representing 70% of the market), observed only 1/3 of the potential frauds in the studied closed files. One can interpret this number as an index of efficiency for the entire verification process in the industry. A natural question is: Why is this index of efficiency so low?

Keywords: Insurance fraud; Quebec automobile insurance industry; observed fraud; estimated fraud; hidden phenomenon; claim adjusters; count data estimators; robustness (search for similar items in EconPapers)
JEL-codes: D81 G22 (search for similar items in EconPapers)
Pages: 11 pages
Date: 1997-09-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Insurance fraud estimation: more evidence from the Quebec automobile insurance industry (1997)
Working Paper: Insurance Fraud Estimation: More Evidence from the Quebec Automobile Insurance Industry (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:crcrmw:1996_002

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