Skip to main content

When Lying Does Not Pay: How Experts Detect Insurance Fraud

Abstract

A growing literature has focused on understanding how to detect and deter unethical consumer behavior. In this work, we focus on a particularly important type of unethical consumer behavior, consumer insurance fraud, and we analyze a unique dataset to understand how experts investigate suspicious claims. Two separate but related literatures inform the process of investigating suspicious insurance claims. The first literature is grounded in field research and emphasizes the importance of secondary sources. The second literature is grounded in laboratory studies that emphasize the importance of interpersonal interactions. Here we draw upon both literatures to consider the importance of claimant interviews within the context of many investigative actions and the potential for claimants to avoid interviews. In an empirical study using qualitative and quantitative data from auto insurance claim investigations, we analyze investigative chronologies conducted by skilled experts. In doing so, we find that even when investigators can access information from a variety of sources such as witnesses, databases, and physical evidence, claimant interviews are the most important step in determining whether or not claims are denied or paid. Furthermore, we identify interpersonal avoidance as an important signal of unethical claimant behavior. Our findings inform deception detection theory and practice. We identify implications for deception detection in business, particularly for consumer unethical behavior and insurance fraud investigations.

This is a preview of subscription content, access via your institution.

Fig. 1

Notes

  1. 1.

    Other insurance companies may have different ratios. These were the statistics for the firm that we studied during the time period of our study. Furthermore, there is some chance that the paid claims entail some level of deception (Lesch and Brinkmann 2011; Morley et al. 2006). We address this issue in our “Limitations” section.

  2. 2.

    Twelve claims did not involve an attempted or completed interview, so we conducted t-tests on the remaining 143 claims.

References

  1. Aquino, K., Tripp, T. M., & Bies, R. J. (2001). How employees respond to personal offense: The effects of blame attribution, victim status, and offender status on revenge and reconciliation in the workplace. Journal of Applied Psychology, 86, 52–59.

    Article  Google Scholar 

  2. Bazerman, M. H., Curhan, J., Moore, D. A., & Valley, K. (2000). Negotiation. Annual Review of Psychology, 51, 279–314.

    Article  Google Scholar 

  3. Bezrukova, K., Jehn, K. A., Zanutto, E. L., & Thatcher, S. M. B. (2009). Do workgroup faultlines help or hurt? A moderated model of faultlines, team identification, and group performance. Organization Science, 20, 35–50.

    Article  Google Scholar 

  4. Brinkmann, J. (2005). Understanding insurance customer dishonesty: Outline of a situational approach. Journal of Business Ethics, 61, 183–197.

    Article  Google Scholar 

  5. Brinkmann, J., & Lentz, P. (2006). Understanding insurance customer dishonesty: Outline of a moral-sociological approach. Journal of Business Ethics, 66, 177–195.

    Article  Google Scholar 

  6. Brockett, P. L., Derrig, R. A., Golden, L. L., Levine, A., & Alpert, M. (2002). Fraud classification using principal components analysis of RIDITS. The Journal of Risk and Insurance, 69, 341–371.

    Article  Google Scholar 

  7. Buller, D. B., & Burgoon, J. K. (1996). Interpersonal deception theory. Communicative Theory, 6, 203–242.

    Article  Google Scholar 

  8. Chatman, J. A., & Flynn, F. J. (2001). The influence of demographic heterogeneity on the emergence and consequences of cooperative norms in work teams. Academy of Management Journal, 44, 956–974.

    Google Scholar 

  9. Coalition Against Insurance Fraud. (2007). Four faces: Why some Americans do—and do not tolerate insurance fraud. Retrieved June 10, 2015 from http://www.insurancefraud.org/downloads/Four_Faces_07.pdf.

  10. Coalition Against Insurance Fraud. (2014). Fraud statistics. Retrieved March 14, 2014 from http://www.insurancefraud.org/statistics.htm#Auto%20insurance.

  11. Colquitt, L. L., & Hoyt, R. E. (1997). An empirical analysis of the nature and cost of fraudulent life insurance claims: Evidence from resisted claims data. Journal of Insurance Regulation, 15, 451–479.

    Google Scholar 

  12. Conlon, D. E., & Sullivan, D. P. (1999). Examining the actions of organizations in conflict: Evidence from the Delaware court of chancery. Academy of Management Journal, 42, 319–330.

    Google Scholar 

  13. Dana, J., Cain, D., & Dawes, R. (2006). What you don’t know won’t hurt me: Costly (but quiet) exit in dictator games. Organizational Behavior and Human Decision Processes, 100, 193–201.

    Article  Google Scholar 

  14. Dean, D. H. (2004). Perceptions of the ethicality of consumer insurance claim fraud. Journal of Business Ethics, 54, 67–79.

    Article  Google Scholar 

  15. DePaulo, B. M. (1994). Spotting lies: Can humans learn to do better? Current Directions in Psychological Science, 3, 83–86.

    Article  Google Scholar 

  16. DePaulo, B. M., DePaulo, P. J., Tang, J., & Swaim, G. W. (1989). Lying and detecting lies in organizations. In R. A. Giacalone & P. Rosenfeld (Eds.), Impression management in the organization (pp. 377–393). Hillsdale, NJ: Lawrence Erlbaum Associates.

    Google Scholar 

  17. DePaulo, B. M., Lindsay, J. J., Malone, B. E., Muhlenbruck, L., Charlton, K., & Cooper, H. (2003). Cues to deception. Psychological Bulletin, 129, 74–118.

    Article  Google Scholar 

  18. DePaulo, B. M., & Pfeifer, R. L. (1986). On-the-job experience and skill at detecting deception. Journal of Applied Social Psychology, 16, 249–267.

    Article  Google Scholar 

  19. DePaulo, B. M., & Rosenthal, R. (1979). Telling lies. Journal of Personality and Social Psychology, 37, 1713–1722.

    Article  Google Scholar 

  20. Dionne, G., Guiliano, G., & Picard, P. (2009). Optimal auditing with scoring: Theory and application to insurance fraud. Management Science, 55, 58–70.

    Article  Google Scholar 

  21. Ekman, P., Friesen, W. V., & Hager, J. C. (2002). The second action coding system (2nd ed.). London: Research Nexus eBook, Salt Lake City, and Weidenfeld & Nicolson (world).

    Google Scholar 

  22. Ekman, P., O’Sullivan, M., Friesen, W., & Scherer, K. (1991). Face, voice, and body in detecting deceit. Journal of Nonverbal Behavior, 15, 125–135.

    Article  Google Scholar 

  23. Elaad, E., Ginton, A., & Jungman, N. (1992). Detection measures in real-life criminal guilty knowledge tests. Journal of Applied Psychology, 77, 757–767.

    Article  Google Scholar 

  24. Ericson, R. V., Doyle, A., & Barry, D. (2003). Insurance as governance. Toronto: University of Toronto Press Incorporated.

    Google Scholar 

  25. Fiedler, K., & Walka, I. (1993). Training lie detectors to use nonverbal cues instead of global heuristics. Human Communication Research, 20, 199–223.

    Article  Google Scholar 

  26. Frank, M. G., & Ekman, P. (1997). The ability to detect deceit generalizes across different types of high-stakes lies. Journal of Personality and Social Psychology, 72, 1429–1439.

    Article  Google Scholar 

  27. Frank, M. G., & Ekman, P. (2004). Nonverbal detection of deception in forensic contexts. In W. T. O’Donohue & E. R. Levensky (Eds.), Handbook of forensic psychology (pp. 635–653). New York: Elsevier Science.

    Chapter  Google Scholar 

  28. Fullerton, S., Kerch, K. B., & Dodge, H. R. (1996). Consumer ethics: An assessment of individual behavior in the market place. Journal of Business Ethics, 15, 805–814.

    Article  Google Scholar 

  29. Gaspar, J., & Schweitzer, M. (2013). The emotion deception model: A review of deception in negotiation and the role of emotion in deception. Negotiation and Conflict Management Research, 6, 160–179.

    Article  Google Scholar 

  30. Gilbert, D. T., Krull, D. S., & Pelham, B. W. (1988). Of thoughts unspoken: Social inference and the self-regulation of behavior. Journal of Personality and Social Psychology, 55, 685–694.

    Article  Google Scholar 

  31. Ginton, A., Daie, N., Elaad, E., & Ben-Shakhar, G. (1982). A method for evaluating the use of the polygraph in a real-life situation. Journal of Applied Psychology, 67, 131–137.

    Article  Google Scholar 

  32. Glac, K., Warren, D. E., & Chen, C. (2012). Conflict in roles: Lying to the ingroup versus the outgroup in negotiations. Business and Society, 53, 440–460.

    Article  Google Scholar 

  33. Greenberg, J. (1990). Employee theft as a reaction to underpayment inequity: The hidden cost of pay cuts. Journal of Applied Psychology, 75, 561–568.

    Article  Google Scholar 

  34. Greenberg, J. (1993). Stealing in the name of justice: Informational and interpersonal moderators of theft reactions to underpayment inequity. Organizational Behavior and Human Decision Processes, 54, 81–103.

    Article  Google Scholar 

  35. Grover, S. L. (1993). Lying, deceit, and subterfuge: A model of dishonesty in the workplace. Organization Science, 4, 478–495.

    Article  Google Scholar 

  36. Horgan, J. J. (1974). Criminal investigation. New York: McGraw-Hill.

    Google Scholar 

  37. Lesch, W. C., & Brinkmann, J. (2011). Consumer insurance fraud/abuse as co-creation and co-responsibility: A new paradigm. Journal of Business Ethics, 103, 17–32.

    Article  Google Scholar 

  38. Levine, E. E., & Schweitzer, M. E. (2014). Are liars ethical? On the tension between benevolence and honesty. Journal of Experimental Social Psychology, 53, 107–117.

    Article  Google Scholar 

  39. Lewicki, R. J. (1983). Lying and deception: A behavioral model. In M. H. Bazerman & R. J. Lewicki (Eds.), Negotiation in organizations (pp. 68–90). Beverly Hills, CA: Sage.

    Google Scholar 

  40. Loughran, D. (2005). Deterring fraud: The role of general damage awards in automobile insurance settlements. Journal of Risk and Insurance, 72, 551–575.

    Article  Google Scholar 

  41. Mann, S., Vrij, A., & Bull, R. (2004). Detecting true lies: Police officers’ ability to detect suspects’ lies. Journal of Applied Psychology, 89, 137–149.

    Article  Google Scholar 

  42. Mitchell, V. W., Balabanis, G., Schlegelmilch, B. B., & Cornwell, T. B. (2009). Measuring unethical consumer behavior across four countries. Journal of Business Ethics, 88, 395–412.

    Article  Google Scholar 

  43. Miyazaki, A. D. (2009). Perceived ethicality of insurance claim fraud: Do higher deductibles lead to lower ethical standards? Journal of Business Ethics, 87, 589–598.

    Article  Google Scholar 

  44. Morley, N. J., Ball, L. J., & Ormerod, T. C. (2006). How the detection of insurance fraud succeeds and fails. Psychology, Crime and Law, 12(2), 163–180.

    Article  Google Scholar 

  45. Park, H. S., Levine, T. R., McCornack, S. A., Morrison, K., & Ferrara, M. (2002). How people really detect lies. Communication Monographs, 69, 144–157.

    Article  Google Scholar 

  46. Reinhard, M., Sporer, S. L., Scharmach, M., & Marksteiner, T. (2011). Listening, not watching: Situational familiarity and the ability to detect deception. Journal of Personality and Social Psychology, 101, 467–484.

    Article  Google Scholar 

  47. Schneider, B., Wheeler, J. K., & Cox, J. F. (1992). A passion for service: Using content analysis to explicate service climate themes. Journal of Applied Psychology, 77, 705–716.

    Article  Google Scholar 

  48. Schweitzer, M., DeChurch, L., & Gibson, D. (2005). Conflict frames and the use of deception: Are competitive negotiators less ethical? Journal of Applied Social Psychology, 35, 2123–2149.

    Article  Google Scholar 

  49. Scott, E. D., & Jehn, K. A. (1999). Ranking rank behaviors. Business and Society, 38, 296–326.

    Article  Google Scholar 

  50. Scott, E. D., & Jehn, K. A. (2003a). Multiple stakeholder judgments of employee behaviors: A contingent prototype model of dishonesty. Journal of Business Ethics, 46, 235–250.

    Article  Google Scholar 

  51. Scott, E. D., & Jehn, K. A. (2003b). About face: How employee dishonesty influences a stakeholder’s image of an organization. Business and Society, 42, 234–267.

    Article  Google Scholar 

  52. Seymour, T. L., Seifert, C. M., Shafto, M. G., & Mosmann, A. L. (2000). Using response time measures to assess guilty knowledge. Journal of Applied Psychology, 85, 30–37.

    Article  Google Scholar 

  53. Shalvi, S., Eldar, O., & Bereby-Meyer, Y. (2012). Honesty requires time (and lack of justifications). Psychological Science, 23, 1264–1270.

    Article  Google Scholar 

  54. Shalvi, S., Handgraaf, M. J. J., & De Dreu, C. K. W. (2011). People avoid situations that enable them to deceive others. Journal of Experimental Social Psychology, 47, 1096–1106.

    Article  Google Scholar 

  55. Shell, G. R. (2006). Bargaining for advantage. New York: Penguin Books.

    Google Scholar 

  56. Tenbrunsel, A. E. (1998). Misrepresentation and expectations of misrepresentation in an ethical dilemma: The role of incentives and temptation. Academy of Management Journal, 41, 330–339.

    Google Scholar 

  57. Tennyson, S., & Salsas-Forn, P. (2002). Claims auditing in automobile insurance: Fraud detection and deterrence objectives. The Journal of Risk and Insurance, 69, 289–308.

    Article  Google Scholar 

  58. Tripp, T. M., Bies, R. J., & Aquino, K. (2002). Poetic justice or petty jealousy? The aesthetics of revenge. Organizational Behavior and Human Decision Processes, 89, 966–984.

    Article  Google Scholar 

  59. Viaene, S., Derrig, R. A., Baesens, B., & Dedene, G. (2002). A comparison of state-of-the-art classification techniques for expert automobile insurance claim fraud detection. The Journal of Risk and Insurance, 69, 373–421.

    Article  Google Scholar 

  60. Vitell, S. J. (2003). Consumer ethics research: Review, synthesis and suggestions for the future. Journal of Business Ethics, 43, 33–47.

    Article  Google Scholar 

  61. Vitell, S. J., & Muncy, J. (1992). Consumer ethics: An empirical investigation of factors influencing ethical judgments of the final consumer. Journal of Business Ethics, 11, 585–597.

    Article  Google Scholar 

  62. Vitell, S. J., & Muncy, J. (2005). The Muncy–Vitell consumer ethics scale: A modification and application. Journal of Business Ethics, 62, 267–275.

    Article  Google Scholar 

  63. Ward, J. C., & Ostrom, A. L. (2006). Complaining to the masses: The role of protest framing in customer-created complaint web sites. Journal of Consumer Research, 33, 220–230.

    Article  Google Scholar 

  64. Zhong, C., Liljenquist, K., & Cain, D. (2009). Moral self-regulation: Licensing and compensation. In D. Cremer (Ed.), Psychological perspectives on ethical behavior and decision making (pp. 75–89). Charlotte, NC: Information Age Publishing.

    Google Scholar 

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Danielle E. Warren.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Warren, D.E., Schweitzer, M.E. When Lying Does Not Pay: How Experts Detect Insurance Fraud. J Bus Ethics 150, 711–726 (2018). https://doi.org/10.1007/s10551-016-3124-8

Download citation

Keywords

  • Consumer ethics
  • Customer dishonesty
  • Deception detection
  • Insurance fraud
  • Interpersonal avoidance
  • Investigations