The Effectiveness of Insurance Fraud Statutes: Evidence from Automobile Insurance

35 Pages Posted: 7 Jan 2005

See all articles by Robert E. Hoyt

Robert E. Hoyt

University of Georgia - C. Herman and Mary Virginia Terry College of Business

David B. Mustard

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics; IZA Institute of Labor Economics; University of Georgia Law School

Lawrence S. Powell

Alabama Center for Insurance Information and Research

Date Written: December 23, 2004

Abstract

Insurance fraud, which adds an estimated $85 billion per year to the total insurance bill in the U.S., is an extremely serious problem for consumers, regulators, and insurance companies. This paper analyzes the effects of state legislation and market conditions on automobile insurance fraud from 1988 to 1999, a period representing a substantial increase in the enactment of antifraud legislation. Our empirical results show that the laws have mixed effects; two laws have no statistically significant effect on fraud. The strongest evidence of fraud mitigation effects are associated with mandatory Special Investigation Units, classification of insurance fraud as a felony, and mandatory reporting of professionals to licensing authorities. However, laws requiring insurers to report potentially fraudulent claims to law enforcement authorities increase fraud, which may reflect some substitution from more efficacious private efforts to less productive state activity. Many underlying characteristics of the market also affect fraud.

Keywords: Insurance fraud, automobile insurance, moral hazard

JEL Classification: G23, K42

Suggested Citation

Hoyt, Robert E. and Mustard, David B. and Powell, Lawrence S., The Effectiveness of Insurance Fraud Statutes: Evidence from Automobile Insurance (December 23, 2004). Available at SSRN: https://ssrn.com/abstract=643762 or http://dx.doi.org/10.2139/ssrn.643762

Robert E. Hoyt

University of Georgia - C. Herman and Mary Virginia Terry College of Business ( email )

Athens, GA 30602-6255
United States
706-542-4290 (Phone)
706-542-4295 (Fax)

David B. Mustard (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Athens, GA 30602-6254
United States
706-542-3624 (Phone)
706-542-3376 (Fax)

HOME PAGE: http://www.terry.uga.edu/~dmustard/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

University of Georgia Law School

225 Herty Drive
Athens, GA 30602
United States

Lawrence S. Powell

Alabama Center for Insurance Information and Research

Box 870397
Tuscaloosa, AL 35487
United States

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