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Deterring Fraud: The Role of General Damage Awards in Automobile Insurance Settlements

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  • David S. Loughran
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    Abstract

    Awards for pain and suffering and other noneconomic losses account for over half of all damages awarded under third-party auto insurance bodily injury settlements. This article hypothesizes that third-party insurers use general damage awards to reduce the incentive to submit exaggerated claims for specific damages for injuries and lost wages. Consistent with this hypothesis, the article finds evidence using data on over 17,000 closed bodily injury claims that special damage claims that exceed their expected value receive proportionally lower general damage awards than claims that do not. Among the implications of this research is the possibility that insurers will be less zealous in challenging fraudulent special damage claims under a third-party insurance regime than they will be under a first-party insurance regime in which access to general damages is limited. Copyright The Journal of Risk and Insurance.

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    Bibliographic Info

    Article provided by The American Risk and Insurance Association in its journal The Journal of Risk and Insurance.

    Volume (Year): 72 (2005)
    Issue (Month): 4 ()
    Pages: 551-575

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    Handle: RePEc:bla:jrinsu:v:72:y:2005:i:4:p:551-575

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    Cited by:
    1. Georges Dionne, 2012. "The Empirical Measure of Information Problems with Emphasis on Insurance Fraud and Dynamic Data," Cahiers de recherche 1233, CIRPEE.
    2. Andrea Gallice, 2012. "Strategic Announcements of Reference Points in Disputes and Litigations," Working papers 003, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    3. Mercedes Ayuso(universitat de Barcelona) & Miguel Santolino(Universitat de Barcelona), 2009. "Individual prediction of automobile bodily injury claims liabilities," Working Papers in Economics 220, Universitat de Barcelona. Espai de Recerca en Economia.
    4. Mercedes Ayuso & Miguel Santolino, 2008. "Forecasting the maximum compensation offer in the automobile BI claims negotiation proces," IREA Working Papers 200807, University of Barcelona, Research Institute of Applied Economics, revised May 2008.

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