Balancing the Insurance Equation: Understanding the Climate for Managing Consumer Insurance Fraud and Abuse

Consumer insurance fraud and abuse (CIFA) is the subject of managerial, regulatory, and judicial attention. This issue may represent the misallocation of billions of dollars, with monitoring and remedial costs contributing billions more. This problem is most often addressed as a matter of claimant dishonesty without further investigation of possibly contributing precursors. Using a national survey, this paper identifies factors contributing to the societal climate surrounding acceptance of consumer insurance fraud and abuse, and its further disposition by insurers and regulators. The results suggest that the treatment of this problem will not address underlying, causal elements and may perpetuate the social problem. Factors contributing to the acceptance of CIFA include social norms about fraudulent acts, perceptions about the (in)equity of insurance exchanges, the level of concern about insurance fraud, and one’s personal ethical stance. The level of acceptance of fraud, in addition to the magnitude of one’s acceptance of CIFA, jointly contribute to how an individual contemplates strategies for society’s management of this problem—i.e., whether we should continue to follow current policies (pay all legitimate claims or portions thereof), pay all claims, or become more aggressive in the pursuit of fraudulent claims and offenders (deny future insurance, seek reimbursement for false claims). Insurers should seek solutions to this cycle of mistrust and inequity through improved education about the terms of insurance (manage expectations) and improved management of the customer–insurer relationship throughout its life.