17 Pages Posted: 21 Mar 2003
Insurance fraud is a major problem in the United States at the beginning of the 21st century. It has no doubt existed wherever insurance policies are written, taking different forms to suit the economic time and coverage available. From the advent of "railway spine" in the 19th century to "trip and falls" and "whiplash" in the 20th century, individuals and groups have always been willing and able to file bogus claims. The term fraud carries the connotation that the activity is illegal with prosecution and sanctions as the threatened outcomes. The reality of current discourse is a much more expanded notion of fraud that covers many unnecessary, unwanted, and opportunistic manipulations of the system that fall short of criminal behavior. Those may be better suited to civil adjudicators or legislative reformers. This survey describes the range of these moral hazards arising from asymmetric information, especially in claiming behavior, and the steps taken to model the process and enhance detection and deterrence of fraud in its widest sense. The fundamental problem for insurers coping with both fraud and systemic abuse is to devise a mechanism that efficiently sorts claims into categories that require the acquisition of additional information at a cost. The five articles published in this issue of the Journal of Risk Insurance advance our knowledge on several fronts. Measurement, detection, and deterrence of fraud are advanced through statistical models, intelligent technologies are applied to informative databases to provide for efficient claim sorts, and strategic analysis is applied to property-liability and health insurance situations.
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