| 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. |