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The Effectiveness of Insurance Fraud Statutues: Evidence from Automobile Insurance

Author

Listed:
  • Robert E. Hoyt

    (University of Georgia)

  • David B. Mustard

    (University of Georgia)

  • Lars S. Powell

    (University of Arkansas)

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.

Suggested Citation

  • Robert E. Hoyt & David B. Mustard & Lars S. Powell, 2005. "The Effectiveness of Insurance Fraud Statutues: Evidence from Automobile Insurance," Risk and Insurance 0501001, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpri:0501001
    Note: Type of Document - pdf; pages: 35
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/ri/papers/0501/0501001.pdf
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    References listed on IDEAS

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    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 635-657, October.
    6. Danzon, Patricia, 1984. "The Frequency and Severity of Medical Malpractice Claims," Journal of Law and Economics, University of Chicago Press, vol. 27(1), pages 115-148, April.
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    8. 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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    Keywords

    Insurance Fraud; Automobile Insurance; Moral Hazard;

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