Abstract
While it is generally argued that threats of legal sanctions are more effective with offenders involved in economic crimes than with delinquents committing more conventional crimes, such an affirmation rests on weak empirical evidence. Also, most studies supporting this proposition were conducted with non-experimental designs, thus, undermining the interval validity of the results. On the other hand, studies base their predictions on individual factors and do not incorporate contextual factors. To overcome those limitations, a randomized field experiment was implemented in four insurance companies to incorporate contextual factors into the dynamics of deterrence. This study assessed the effect of a written threat (a deterrent letter reminding insured persons of the punishment for insurance fraud) on claim padding behaviours of insured persons filing claims for residential theft. A deterrent-letter project was implemented in four insurance companies, with claims randomly assigned to the experimental or the control group. Cases belonging to the control group were managed as usual, while individuals in the experimental group received the written threat. The experimental design made sure that the deterrent stimulus was exactly delivered to the insured persons when they had the opportunity to exaggerate the value of their claims. Findings demonstrate that claimants in the experimental group were less likely to pad their claims than were those in the control group. The letter was effective, regardless of the means of delivery. In conclusion, the administration of a written threat at the moment of criminal opportunity appears to be an effective strategy for preventing economic crimes.
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Notes
Although those three studies come to the conclusion that the threat of legal sanctions is effective in deterring economic crimes, they differ in several ways. They investigated the effect of a deterrent stimulus on distinct and specific forms of economic crimes: tax evasion (Schwartz and Orleans 1967); restitution payments (Lurigio and Davis 1990) and claim padding (Tremblay et al. 2000). Experimental protocols also varied across the studies. While Lurigio and Davis (1990) and Tremblay et al. (2000) delivered written threats to offenders and potential offenders, respectively, Schwartz and Orleans (1967) conducted interviews with tax payers. Therefore, we cannot conclude that the stimuli used in these experiments would produce the same results in other experiments attempting to prevent identical forms of crimes.
As has been pointed out, the protocol was slightly different in the fourth company (company D).
Note that one of the experimental conditions that were used in the study by Tremblay et al. (2000)—the persuasive letter—was dropped in this study since it was not implemented in all companies. Findings showed that appealing to conscience seemed to increase the amounts of claims.
All monetary values reported in this section are expressed in Canadian dollars.
The 105.08% value might appear to be unrealistic, but it represents a case where the claimant asked for an amount higher than the value for which he was insured. This is the only case where it happed. This client was insured for $10,000 and claimed $10,507.56.
Since some values for the ratio were less than 1, we added 1 to all values in order to avoid having negative logarithmic values.
The Bonferroni test was used to calculate all differences between means.
Company D had a mean ratio:value (1.92) significantly higher (P < 0.05) than the one observed in Company B (1.53). All other means were similar (P > 0.05): 1.69 in Company A and 1.74 in Company C.
When the average amounts claimed were calculated with the claim value:ratio, the mean values were slightly higher than those of the amounts claimed. Although the natural logarithmic transformation reduced the asymmetry in the ratio values, the data were still slightly skewed. Therefore, the distribution of the data can explain differences in both means. On the other hand, the form of the distribution was not a threat to the validity of the results obtained through the t-tests and full factorial ANOVA, since our sample contained more than 50 units of analysis (Fox 2003).
Insurance fraud estimations not only vary from one study to another, but there also is no agreement on the methodologies to use to compute such estimates (Clarke 1990; Derrig 2002). Notwithstanding the different methodologies, some estimate the general costs associated with insurance fraud (Report of the National Committee of Experts on Insurance Fraud 1994), while others measure the extent of some precise forms of insurance frauds (see Tremblay et al. 1992). For instance, Tremblay et al. (1992) combined survey and insurance data. In 1989, 73,380 claims were made to Quebec’s insurers. On average, $262 were paid per claim. The first estimate is based on findings obtained from a survey conducted among insurance workers (independent loss adjusters, loss adjusters, claim supervisors and claim directors). According to insurance respondents surveyed (n = 247), 38% of claims are exaggerated (n = 27,884) and 50% of the amount asked is due to padding. Thus, real damages sustained would be equal to about $175. This implies that 1.25% of all indemnities paid by insurance companies ($87 × 27,884 claims/192.4 millions paid in indemnities) can be attributed to padding, or $12 for each $1,000. The second estimate is based on findings from a survey realized among a representative sample of the Quebec population. According to the participants, 13.5% of claims (3,764 on 73,380) are inflated and 65% of the value claimed is associated with ‘boosting’ (real damages equal $160). Based on these parameters, claim padding represents 0.02% of the payments ($391,455). On the other hand, the Report of the National Committee of Experts on Insurance Fraud (1994) investigated 500 closed files and 440 suspicious cases and determined, based on common fraud indicators, that about 15% of all claims were suspicious in Canada. Extrapolation of these findings to the total claims paid out in 1992 suggest that 1.3 billion of indemnities paid in 1992 were partially or fully fraudulent. No distinction was made between false claims and claim padding or between types of fraud: vehicle, residential, health care, etc.
One could argue that these notions can hardly be translated into blocks, but, as demonstrated by Sherman et al. (1992) and Lurigio and Davis (1990), someone’s stake in conforming to the rules can be estimated with socio-demographic indicators such as marital and employment status. As highlighted by Lurigio and Davis, the notification procedure was more effective with offenders who were employed and who had fewer prior arrests and prior probations.
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Acknowledgements
The research associated with this article was funded by the Social Sciences and Humanities Research Council of Canada and the Insurance Bureau of Canada. We would like to thank two anonymous reviewers and the editor of the Journal for their precious comments. We are also grateful to Steven Sacks for editing the paper, and we thank Pierre Tremblay—our colleague—for reviewing the whole manuscript.
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Appendix
Appendix
Copy of the deterrent letter
Dear Madam\Dear Sir,
As you may already know the rise in insurance fraud is a matter of concern for the insurance industry. And since the deliberate boosting of insurance claims is one of the most common form of such frauds, we, at the Insurance Bureau of Canada, have taken the liberty to share some of our feelings about this matter.
Perhaps you have already been told, at one time or another: “To really cover your losses, why don’t you boost your claim by 50%!”. This may sound like a “friendly advice”. But we think otherwise. Deliberately exaggerating the value of your losses is a crime according to the Criminal Code (Article 380). This crime is not only punishable by a prison sanction but could also invalidate any right to indemnity. And we know, as a recent poll has revealed, that a very large majority of people feel that boosting insurance claims is morally wrong. We at the Insurance Bureau of Canada have decided to encourage insurance companies to increase their effort in their fight against insurance frauds.
On the other hand, we very well know that the large majority of insurance holders share our beliefs. And this is why we take this opportunity to ask for your help and your cooperation in completing carefully the enclosed forms.
Sincerely Yours,
Note on the claim form
I, the undersigned, ... ... ... ..., being aware that a false declaration concerning an application for indemnity not only invalidates any right to indemnity but may also lead to prosecution under article 380 of the Criminal Code, do declare that all information given herein above is true, accurate and complete.
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Blais, E., Bacher, JL. Situational deterrence and claim padding: results from a randomized field experiment. J Exp Criminol 3, 337–352 (2007). https://doi.org/10.1007/s11292-007-9043-z
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DOI: https://doi.org/10.1007/s11292-007-9043-z
Keywords
- Claim padding
- Crime prevention
- Insurance fraud
- Randomized field experiment
- Situational deterrence
- Written threat