Social Norms and Insurance Fraud

In this research, we aim at understanding how perceived contract nonperformance risk affects claiming behavior of consumers in a behavioral experiment. In particular, we hypothesize that the perception that insurance companies deliberately take actions to avoid the payment of valid claims—as is often salient for consumers from media reports—renders a social norm salient under which inflating claims or even submitting fraudulent claims is a socially accepted behavior. Support of our hypotheses would imply that resulting from observed or perceived insurance company behavior, insureds may view dishonest behavior as justifiable, implying potentially large inefficiencies and welfare losses.

We rely on experimental data to provide answers to this research question because the availability of real market data (for example, in the context of an event study) is limited. In particular, the time resolution of claims data at the insurance-company level is extremely low, allowing at best an annual data view in most cases. Also, issues of spillover effects (e.g., resulting from information transmission from local to national media markets) are hard to deal with. As motivating example, we nevertheless tried to identify real empirical settings that help supporting a case for the relevance of our research question.