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Economic Analysis of Insurance Fraud

In: Handbook of Insurance

Author

Listed:
  • Pierre Picard

    (CREST-Ecole Polytechnique)

Abstract

We survey recent developments in the economic analysis of insurance fraud. The chapter first sets out the two main approaches to insurance fraud that have been developed in the literature, namely, the costly state verification and the costly state falsification. Under costly state verification, the insurer can verify claims at some cost. Claims’ verification may be deterministic or random, and it can be conditioned on fraud signals perceived by insurers. Under costly state falsification, the policyholder expends resources for the building-up of his or her claim not to be detected. We also consider the effects of adverse selection, in a context where insurers cannot distinguish honest policyholders from potential defrauders, as well as the consequences of credibility constraints on antifraud policies. Then we focus our attention on the risk of collusion between policyholders and insurance agents or service providers, and on how competition interacts with fraud in the insurance market. Finally, we analyze how contract law provisions contribute to economic efficiency when there is a risk of fraud.

Suggested Citation

  • Pierre Picard, 2025. "Economic Analysis of Insurance Fraud," Springer Books, in: Georges Dionne (ed.), Handbook of Insurance, edition 0, pages 259-323, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-69674-9_9
    DOI: 10.1007/978-3-031-69674-9_9
    as

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