|
Article Excerpt
CONSUMER DISHONESTY STEMS FROM A COMPLEX INTERPLAY OF motivations and circumstances, moderated by morality, opportunity, social norms, and institutional context. The complexity is perhaps nowhere more apparent than in the case of insurance fraud, particularly claims fraud. Claims fraud may arise as a result of deliberate planning or casual opportunity, and in each case it may involve complete fabrication of losses or relatively small exaggerations. It may be motivated by pure profit seeking, a sense of entitlement, desperation, or resentment. It may even arise inadvertently due to differences of opinion regarding contractual terms or an insured event. Insurance claims fraud is thus variously viewed as an economic-contractual problem, a moral-psychological problem, a moral-sociological problem, or a criminal problem.
Because insurance claims fraud involves taking advantage of the insurer's contractual promise to pay (some amount of) losses (in some circumstances), it differs from other common situations of consumer dishonesty such as tax evasion, pilfering from an employer, or shoplifting. (1) This unique contractual relationship has important implications for the character of claims fraud and the ways in which insurers and societies attempt to deal with it. Some have argued that insurance fraud is an example of a "created" crime, because it is determined by the terms of the insurance contract and the strength of their enforcement (Ericson, Barry, and Doyle, 2000). Fraud is detected only through policing, and increased policing will lead to detection of more fraud and therefore to an increased fraud problem. This point of view suggests that the perceived rise in insurance fraud in recent years may result from greater policing rather than from a higher incidence of fraud behaviors, and calls into question the benefits of increased expenditures to detect fraud. However, this ignores the high costs of fraud behaviors to society. (2)
Once the insurance contract has been defined and agreed upon, its violation through illegitimate claiming will lead to inefficiencies and inequities in insurance markets. Inequities occur because costs are inevitably shifted to others when claims are inflated above those accounted for in the premium charge, or when all consumers' premiums are higher because some consumers inflate their claims. Inefficiencies arise if the possibility of profiting through fraud distorts insurance purchase decisions, loss prevention, or claiming incentives. Additionally, attempts to prevent fraud create contractual restrictions for all consumers that lead to less protection from risks than would occur in a market without fraud. Thus, even in the narrowest economic sense insurance fraud has negative consequences for society.
Nevertheless, the policing of fraud inevitably reduces trust relationships between insurers and consumers and thereby reduces gains from trade in insurance. Reduced trust could increase fraud, since studies show that consumers' with negative perceptions of insurance institutions express more accepting attitudes toward fraud (Tennyson, 1997). This consideration lends a new dimension to the analysis of the benefits of increased policing of fraud. Transactions costs of policing fraud are also high, taking into account both the resource expenditures of insurance companies and the costs of legal enforcement. For these reasons prevention of insurance claims fraud may be a less costly alternative. However, improving prevention efforts requires a better understanding of the different dimensions of fraud, the determinants of consumer behavior, and the relationship between consumer behavior and institutional rules.
THE NATURE OF INSURANCE CLAIMS FRAUD
Taxonomies of insurance claims fraud often start with the distinction of whether or not an insured event occurred (Weisberg and Derrig, 1991). If no event occurred but a claim is filed then the fraud is planned or outright. Conversely, if a loss occurred but circumstances are falsified or attempts are made to get excessive payments, this is termed opportunistic fraud. Planned fraud may be undertaken by an individual on a onetime basis, or may be carried out by professionals in a systematic effort to profit from the insurance system. Opportunistic fraud is undertaken by individuals who experience a loss and attempt to shift the costs to the insurance system. Opportunistic fraud is most often characterized by claims exaggeration (buildup), and may be undertaken by the insured alone or with the help of a service provider or legal professional.
Insurance professionals also distinguish between criminal fraud (hard fraud) and that which falls into a gray area of abuse or unethical behavior (soft fraud). Fraud is viewed as criminal when it displays characteristics sufficient to be prosecuted. This is the case when there is evidence of a clear and willful act of material misrepresentation that violates a law and achieves financial gain for the person taking the action (Derrig, 2006). Planned fraud is much more likely to be criminal fraud, and is therefore a matter of concern for law enforcement. Opportunistic fraud may also be criminal but is more likely to fall within the definition of soft fraud (Viaene and Dedene, 2004). It there fore presents a more delicate management task to insurers, who must ' be cognizant of both customer relations (Ericson, Barry, and Doyle, 2000) and legal requirements for fair and prompt settlement (Tennyson and Warfel, 2008; Sykes, 1996) when faced with lack of clear proof of fraud.
Insurance fraud undertaken or facilitated by service providers--such as body shops in the case of automobile insurance or health care providers in the case of health insurance--is also a distinct category. It may arise in at least two forms. First, it may be an extension of attempts to defraud consumers. Because consumers have difficulty knowing (with certainty) the amount of service that they require, there is substantial scope for "overselling" by an expert service-provider. (3) This may take the form of providing too much service (overprovision) or charging too much for services provided (overcharging). (4) Such problems of overselling are likely to be greater when services are paid for by insurance because insured customers have less incentive to monitor service quantities or charges. This form of service fraud would clearly be characterized as planned fraud, and would likely be criminal.
Service providers may also engage in the same acts of overprovision or overcharging in order to help consumers evade insurance limits. For example, some auto repair shops may increase charges to insurers in order to waive the deductible for the insured. (5) In the health insurance context, a number of studies document the willingness of care providers to manipulate insurance restrictions in order to provide higher quality care than is reimbursable under the insurance contract (Freeman et al., 1999; Wynia et al., 2000). Hyman (2001) discusses this problem as a conflict in social norms between physicians and insurers: physicians would view it as necessary to providing quality care, but insurance investigators and government health care programs would view it as criminal fraud. Hyman (2002) concludes that much of fraud in government health care programs falls into this category of aiding consumers in the (opportunistic) buildup of claim amounts rather than...
|
