Claims Auditing in Automobile Insurance: Fraud Detection and Deterrence Objectives

20 Pages Posted: 21 Mar 2003

See all articles by Sharon L. Tennyson

Sharon L. Tennyson

Cornell University - Department of Policy Analysis & Management (PAM)

Pau Salsas-Forn

London Economics

Abstract

Research on insurer management of opportunism in claiming has developed in two parallel literatures. One is a theoretical literature on insurance contracting that yields predictions about the nature of optimal auditing strategies for the deterrence of fraud. The other is a literature based upon statistical analysis of claims that yields empirical strategies for the detection of fraudulent claims. This article links the two literatures by providing an empirical assessment of insurers' auditing practices in relation to theoretical predictions. The analysis makes use of a data set on the disposition of more than 1,000 randomly selected automobile personal injury protection claims settled in the state of Massachusetts. The findings of the article are consistent with the use of rational auditing strategies by insurers and with the use of audits for both deterrence and detection.

Suggested Citation

Tennyson, Sharon L. and Salsas-Forn, Pau, Claims Auditing in Automobile Insurance: Fraud Detection and Deterrence Objectives. Journal of Risk & Insurance, Vol. 69, pp. 289-308, 2002, Available at SSRN: https://ssrn.com/abstract=342797

Sharon L. Tennyson (Contact Author)

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

252 MVR Hall
Ithaca, NY 14853
United States
607-255-2619 (Phone)
607-255-4071 (Fax)

Pau Salsas-Forn

London Economics ( email )

60 Lombard Street
London EC3V 9EA
United Kingdom

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