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The Effectiveness of Insurance Fraud Statutues: Evidence from Automobile Insurance

  • Robert E. Hoyt

    (University of Georgia)

  • David B. Mustard

    (University of Georgia)

  • Lars S. Powell

    (University of Arkansas)

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.

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File URL: http://128.118.178.162/eps/ri/papers/0501/0501001.pdf
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Paper provided by EconWPA in its series Risk and Insurance with number 0501001.

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Length: 35 pages
Date of creation: 05 Jan 2005
Date of revision:
Handle: RePEc:wpa:wuwpri:0501001
Note: Type of Document - pdf; pages: 35
Contact details of provider: Web page: http://128.118.178.162

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  1. Dionne, G. & St-Michel, P., 1988. "Workers' Compensation and Moral Hazard," Cahiers de recherche 8831, Universite de Montreal, Departement de sciences economiques.
  2. Lott, John R, Jr, 1992. "Do We Punish High Income Criminals Too Heavily?," Economic Inquiry, Western Economic Association International, vol. 30(4), pages 583-608, October.
  3. Danzon, Patricia, 1984. "The Frequency and Severity of Medical Malpractice Claims," Journal of Law and Economics, University of Chicago Press, vol. 27(1), pages 115-48, April.
  4. Dionne, G. & St-Michel, P. & Vanasse, C., 1989. "Moral Hazard, Optimal Auditing and Workers' Compensation," Cahiers de recherche 8941, Universite de Montreal, Departement de sciences economiques.
  5. Mustard, David B, 2001. "The Impact of Gun Laws on Police Deaths," Journal of Law and Economics, University of Chicago Press, vol. 44(2), pages 635-57, October.
  6. Thomas A. Eaton & David B. Mustard & Susette M. Talarico, 2005. "Punitive Damages and the Processing of Tort Claims," Law and Economics 0501002, EconWPA.
  7. Earl L. Grinols & David B. Mustard, 2006. "Casinos, Crime, and Community Costs," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 28-45, February.
  8. Peltzman, Sam, 1975. "The Effects of Automobile Safety Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 677-725, August.
  9. Cummins, J David & Tennyson, Sharon, 1996. "Moral Hazard in Insurance Claiming: Evidence from Automobile Insurance," Journal of Risk and Uncertainty, Springer, vol. 12(1), pages 29-50, January.
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