The Effectiveness of Insurance Fraud Statutues: Evidence from Automobile Insurance
AbstractInsurance 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.
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Bibliographic InfoPaper provided by EconWPA in its series Risk and Insurance with number 0501001.
Length: 35 pages
Date of creation: 05 Jan 2005
Date of revision:
Note: Type of Document - pdf; pages: 35
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Insurance Fraud; Automobile Insurance; Moral Hazard;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-09 (All new papers)
- NEP-IAS-2005-01-09 (Insurance Economics)
- NEP-REG-2005-01-09 (Regulation)
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