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Feasible fraud and auditing probabilities for insurance companies and policyholders

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abstract Insurance claims fraud is counted among the major concerns in the insur- ance industry, the reason being that excess payments due to fraudulent claims ac- count for a large percentage of the total payments each year. We formulate optimiza- tion problems from the insurance company as well as the policyholder perspective based on a costly state verification approach. In this setting—while the policyholder observes his losses privately—the insurance company can decide to verify the truth- fulness of incoming claims at some cost. We show simulation results illustrating the agreement range which is characterized by all valid fraud and auditing probability combinations both stakeholders are willing to accept. Furthermore, we present the impact of different valid probability combinations on the insurance company’s and the policyholder’s objective quantities and analyze the sensitivity of the agreement range with respect to a relevant input parameter. This contribution summarizes the major findings of a working paper written by Müller et al. (Working Papers on Risk Management and Insurance (IVW-HSG), No. 92, 2011).
   
type article
   
keywords
   
language English
date of appearance 9-10-2012
journal Zeitschrift für die gesamte Versicherungswissenschaft
publisher Berlin, Heidelberg (Springer)
ISSN 0044-2585
DOI 10.1007/s12297-012-0219-x
volume of journal 101
number of issue 5
page(s) 1
profile area SoM - Responsible Corporate Competitiveness (RoCC)
citation Müller, K., Schmeiser, H., & Wagner, J. (2012). Feasible fraud and auditing probabilities for insurance companies and policyholders. Zeitschrift für die gesamte Versicherungswissenschaft, 5(101), 1, DOI:10.1007/s12297-012-0219-x.