Insurance Claim Operations: The Role of Economic Incentives
41 Pages Posted: 12 Dec 2009 Last revised: 25 Feb 2010
Date Written: September 14, 2009
Abstract
We develop a theory of insurance claim settlement whose structure embodies an insurer’s capacity decision and negotiation between the insurer and claimant in an asymmetrically informed environment. We offer a solution to an insurer’s choice of upfront claim settlement amount under a plausible set of assumptions. Implications from theory are tested with a large sample of liability insurance claims collected over two years in the state of Texas and we find that insurer’s deployment of more capacity to handle a claim and longer settlement times occur for claims with more uncertainty. The empirical results also reveal factors relevant to insurer’s operational choices. Descriptive features of a claim, the age of the claimant and attorney representation on the plaintiff’s side are important determinants of the final settlement amount.
Keywords: insurance, claims, economic incentives, capacity
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Claims Auditing in Automobile Insurance: Fraud Detection and Deterrence Objectives
-
Efd: A Hybrid Knowledge/Statistical-Based System for the Detection of Fraud
By John A. Major and Dan R. Riedinger
-
Optimal Auditing for Insurance Fraud
By Georges Dionne, Florence Giuliano, ...
-
Fraud Detection Using a Multinomial Logit Model with Missing Information
By Steven B. Caudill, Mercedes Ayuso, ...
-
Selection Bias and Auditing Policies for Insurance Claims
By Jean Pinquet, Mercedes Ayuso, ...
-
A Fuzzy-Based Algorithm for Auditors to Detect Element of Fraud in Settled Insurance Claims
By Jag Pathak Phd, Cpa, Cga, Cff, Cfe, Cisa, Navneet Vidyarthi, ...