Two Simple Models of Insurance Fraud
12 Pages Posted: 8 Dec 2020 Publication Status: Preprint
We show a simple approach to modelling insurance frauds, both ex-ante (for the insured event), in the form of false accidents and staged events, and ex-post, in the form of inflated bills and buildups. Optimal amounts of (under)coverage and excess claims are obtained from the maximizing behavior of policyholders under perfect competition and fraud detection activity by the insurance companies. Numerical results are calculated using plausible parameter assumptions.
Keywords: Insurance; fraud; ex-ante moral hazard; ex-post moral hazard; expected utility
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