Skip to main content
SpringerLink
Log in

Consumer Insurance Fraud/Abuse as Co-creation and Co-responsibility: A New Paradigm

  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

Insurance fraud and abuse—international concerns—are inherent in the proposition of insurance and prevalent in insurer–insured interactions. While the subject of considerable industry and regulatory attention, this little-researched area of consumer behavior and consumer ethics represents persistent social policy questions and problems at multiple levels. This article addresses the issue by first defining insurance fraud and its origins in contract, as well as consumer- and insurer-management. The authors conclude by re-envisioning the problem as one of co-creation by the consumer-insured and insurer personnel, proposing a framework for its study and resolution.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Notes

  1. Estimates of inefficiencies in the US property–casualty market vary widely, depending upon measurement and methods (Lesch and Byars 2008), although the Coalition Against Insurance Fraud (CAIF) recently valued economic losses suffered by the US property–casualty segment of the industry at $80 billion annually (Coalition Against Insurance Fraud 2008). This number may understate the current situation as a result of the ongoing economic recession (Hays 2010; National Insurance Crime Bureau 2009; Towers Watson 2010). Moreover, it has been suggested by various sources that between 3 and 10% of the $2.3 trillion expended by US public and private health care entities in 2007 were based in fraudulent claims, a minority of this attributable to actual patient behavior (Rosenbaum et al. 2009; Federal Bureau of Investigation 2009). Comparatively, the US Internal Revenue Service reported that the tax gap—that amount of tax owed but unreported and unpaid—was (after enforcement and collection activities) about $290 billion in 2005 (The Department of the Treasury 2009).

  2. The problem of insurance fraud/abuse is the subject of international concern as well (e.g., Montia 2007; Ipsos-Mori 2005; Jou and Hebenton 2007; Lincoln et al. 2003; Kim and Kwon 2006).

  3. Unfortunately, many authors do not distinguish among the categories and origins of insurance fraud/abuse in estimates of prevalence or valuation. Unless otherwise indicated, fraud/abuse in this article is limited to actions advanced by individual consumers associated with property–casualty claims. Criminal organizations (sometimes referred to as “rings,” or “medical mills”), or other multi-claim fraudulent applications involving multiple actors and levels of organization are excluded from consideration here, but represent serious challenges in their own right. See Quiggle (2010) for examples of the nature and costs associated with criminal enterprise in the auto lines of property–casualty insurance fraud.

  4. See for example http://www.insurancefraud.org/.

  5. The final version of the multi-state agreement, including signature pages and a corrected state-by-state listing of total auto liability direct written premiums was obtained from the Illinois Department of Insurance, personal correspondence, 26th January 2011.

  6. cf. about “rediscovering the normative roots” of insurance, as responsibility sharing together with risk sharing Brinkmann 2012; Brinkmann and Doyle 2010; Brinkmann 2007. In such a perspective, the insurance business faces new opportunities and challenges at all levels. In the context of descriptive ethics research, the paradigm explaining moral hazard with moral neutralization among both insureds and insurers, is ripe for a similar paradigm change as we have inferred above.

  7. Another approach, more in the descriptive ethics and in the risk perception research traditions, will be the subject of an empirical pilot among insurance company staff with customers in Scandinavia, including customer ethics attributions, perceptions of company co-responsibility for the interaction climate, perhaps also including some ethical climate indicators (see Martin and Cullen 2006; Arnaud 2010).

  8. A combined descriptive ethics and risk perception research approach (cf. note *4 above) has such mutual listening and two-way communication in mind, inviting both sides to self-criticism, to put themselves into the shoes of the counterpart.

References

  • Anderson, K. (1990). The phony-claims drain. Insurance Review, 51, 20–23.

    Google Scholar 

  • Andreasen, A. (1993). A social marketing research agenda for consumer behavior researchers. Advances in Consumer Research, 20, 1.

    Article  Google Scholar 

  • Andreasen, A. R. (Ed.). (2001). Ethics in social marketing. Washington, DC: Georgetown Univ. Press.

    Google Scholar 

  • Andreasen, A. R. (2006). Social Marketing in the 21st Century. Thousand Oaks, CA: Sage.

    Google Scholar 

  • Arnaud, A. (2010). Conceptualizing and measuring ethical work climate. Business and Society, 49, 345–358.

    Article  Google Scholar 

  • Baker, T. (1994). Constructing the insurance relationship: Sales stories, claims stories, and insurance contract damages. Texas Law Review, 72, 1395–1443.

    Google Scholar 

  • Baker, T. (2000). Insuring morality, University of Connecticut School of Law University of Connecticut School of Law Working Paper Series-Paper 2, (pp. 1–29).

  • Berardinelli, D. (2008). From Good Hands to Boxing Gloves: The dark side of insurance. Portland, OR: Trial Guides, LLC.

    Google Scholar 

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

    Article  Google Scholar 

  • Brinkmann, J. (2007). Responsibility sharing (elements of a framework for understanding insurance business ethics). In Research in ethical issues in organizations (Vol. 7, pp. 85–113). Amsterdam: Elsevier.

  • Brinkmann, J. (2012). First steps towards combining risk and responsibility perspectives. Journal of Business Ethics (forthcoming).

  • Brinkmann, J. & Doyle, A. (2010). Rediscovering the normative core of insurance: A constructive criticism of insurers’ corporate responsibility statements, Paper presented at the EBEN Research Conference in Tampere, 14–16 June 2010.

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

    Article  Google Scholar 

  • Burger, K. (2003). New Yorkers Show Greater Tolerance For Insurance Than Americans Countrywide, IRC Survey Finds. http://www.aicpcu.org/irc/news/200307241.htm. Accessed 31 Jan 2012.

  • Coalition Against Insurance Fraud. (1997). Four faces: Why some Americans do—and do not—tolerate insurance fraud. Coalition Against Insurance Fraud Technical Report, (pp. 1–22).

  • Coalition Against Insurance Fraud. (2000). National insurance fraud forum, (p. 7) Washington, DC. http://www.insurancefraud.org/downloads/White_paper.pdf. Accessed 31 Jan 2012.

  • Coalition Against Insurance Fraud. (2006). United We Brand—Toward A National Anti-Fraud Outreach Campaign (pp. 1–39). Technical Paper Insight Series.

  • Coalition Against Insurance Fraud. (2008a). 2007 In review: Steady leadership in unsteady times (pp. 15). http://www.insurancefraud.org/annualReport08.htm. Accessed 31 Jan 2012.

  • Coalition Against Insurance Fraud. (2008b). Fraud easier to stomach, Coalition Study Reveals, FraudFocus (Winter) (p. 1).

  • Corum, D. (2008). Fraud and buildup add 13 to 18 percent in excess payments to auto injury claims. Insurance Resource Council : http://www.ircweb.org/News/IRC_Fraud_NR.pdf. Accessed 31 Jan 2012.

  • Dann, S. (2010). Redefining social marketing with contemporary commercial marketing definitions. Journal of Business Research, 63(2), 147–152.

    Article  Google Scholar 

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

    Article  Google Scholar 

  • Department of Treasury. (2009). Update on reducing the federal tax gap and improving voluntary compliance. http://www.irs.gov/newsroom/article/0,id=158619,00.html. Accessed 31 Jan 2012.

  • Derrig, R. (2002). Insurance fraud. The Journal of Risk and Insurance, 69(3), 271–287.

    Article  Google Scholar 

  • Dionne, G., Giuliano, F., & Picard, P. (2003). Optimal auditing for insurance fraud. Working Paper No. 02-05, presented at the 2003 Risk Theory Seminar, (Atlanta, August 28).

  • Dornstein, K. (1998). Accidentally, on purpose—the making of a personal injury underworld in America. New York: 1996-St. Martin’s Press; New York: 1998-St. Martin’s Griffin.

  • Ericson, R. V., & Doyle, A. (2003). The moral risks of private justice: The case of insurance fraud. Risk and morality (pp. 317–362). Toronto: University of Toronto Press, Inc.

    Google Scholar 

  • Ericson, R., & Doyle, A. (2006). The institutionalization of deceptive sales in life insurance: Five sources of moral risk. British Journal of Criminology, 46, 993–1010.

    Article  Google Scholar 

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

    Google Scholar 

  • FBI. (2009). Health care fraud costs billions. http://www.fbi.gov/inside/archive/inside061209.htm. Accessed 26 Jan 2011.

  • Glenn, B. J. (2003). Postmodernism: The basis of insurance. Risk Management and Insurance Review, 6(2), 131–143.

    Article  Google Scholar 

  • Hays, D. (2010). N.Y. Logs A 24% hike in ’09 insurance fraud convictions, P & C National Underwriter (p. 2). http://www.property-casualty.com/News/2010/3/Pages/NY-Logs-A-24-Hike-In-09-Insurance-Fraud-Convictions-.aspx?k=insurance+fraud. Accessed 31 Jan 2012.

  • Hirsch, D. J. (1999). Select material from casualty claim practice. New York: McGraw Hill Higher Education-McGraw Hill Companies.

    Google Scholar 

  • Hunter, J. R. (2007). The ‘Good Hands’ Company or a leader in anti-consumer practices? Excessive prices and poor claims practices at the Allstate Corporation, Consumer Federation of America. http://www.consumerfed.org/elements/www.consumerfed.org/file/finance/Allstate_Report_07_18_07.pdf. Accessed 31 Jan 2012.

  • Insurance Information Institute. (2010). Insurance fraud. http://www.iii.org/media/hottopics/insurance/fraud. Accessed 31 Jan 2012.

  • Insurance Research Council. (1997). Fighting fraud in the insurance industry (2nd ed., pp. 1–72). Insurance Research Council.

  • Insurance Research Council. (2009). The impact of first-party bad faith legislation on homeowners insurance claim trends in Washington State. http://www.aicpcu.org/irc/News/InterimFindingsHO.pdf. Accessed 31 Jan 2012.

  • Insurance Services Office. (2000). Fighting insurance fraud—survey of insurer anti-fraud efforts. http://www.iso.com/Research-and-Analyses/Studies-and-Whitepapers/Fighting-Insurance-Fraud-Survey-of-Insurer-Anti-Fraud-Efforts.html. Accessed 31 Jan 2012.

  • Ipsos Mori. (2005). Public attitudes towards insurance fraud. http://www.ipsos-mori.com/researchpublications/researcharchive/poll.aspx?oItemId=441. Accessed 31 Jan 2012.

  • Jou, S., & Hebenton, B. (2007). Insurance fraud in Taiwan: Reflections on regulatory effort and criminological complexity. International Journal of Sociology of Law, 35(3), 127–142.

    Article  Google Scholar 

  • Kim, H., & Kwon, J. W. (2006). A multi-line insurance fraud recognition system: A government-led approach in Korea. Risk Management and Insurance Review, 9(2), 131–147.

    Article  Google Scholar 

  • Lengnick-Hall, C. A. (1996). Customer contributions to quality: A different view of the customer-oriented firm. The Academy of Management Review, 21(3), 791–824.

    Google Scholar 

  • Lesch, W. (2005). Toward an industry campaign strategy on consumer insurance fraud, Presentation at Coalition against Insurance Fraud-Insurers’ Roundtable Conference, Washington, DC 2005.

  • Lesch, W. (2011). Women and older consumers are tougher on fraud. Journal of Insurance Fraud in America, 2(1). http://www.insurancefraud.org/article.lasso?RecID=1831. Accessed 31 Jan 2012.

  • Lesch, W., & Byars, B. (2008). Consumer insurance fraud in the US property-casualty industry. Journal of Financial Crime, 15(4), 411–431.

    Article  Google Scholar 

  • Lincoln, R., Wells, H., & Petherick, W. (2003). An exploration of automobile insurance fraud (pp. 1–38). Faculty of Humanities and Social Sciences Humanities and Social Science papers Bond University. http://epublications.bond.edu.au/hss_pubs/64. Accessed 31 Jan 2012.

  • Lusch, R. F., & Vargo, S. L. (2006). Service-dominant logic: Reactions, reflections and refinements. Marketing Theory, 6(3), 281–288.

    Article  Google Scholar 

  • Martin, K. D., & Cullen, J. B. (2006). Continuities and extensions of ethical climate theory: A meta-analytic review. Journal of Business Ethics, 69, 175–194.

    Article  Google Scholar 

  • Mazar, N., & Ariely, D. (2006). Dishonesty in everyday life and its policy implications. Journal of Public Policy and Marketing, 25(1), 117–126.

    Article  Google Scholar 

  • MetLife Press Room. (2010a). Do you know what you’re covered for? Metlife Auto and Home Survey Reveals Confusion About Home Insurance Basics, Opportunities for More Complete Coverage. www.metlife.com/about/press-room/index.html?compID=24523. Accessed 26 Jan 2011.

  • MetLife Press Room. (2010b). Are you at risk from costly insurance gaps and overlaps. www.metlife.com/group-auto/insurancequiz/index.html?WT.mc_id=vu1333. Accessed 26 Jan 2011.

  • 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 

  • Montia, G. (2007). Sharp rise in general insurance fraud. http://www.insurancedaily.co.uk/2007/10/18/sharp-rise-in-general-insurance-fraud/. Accessed 31 Jan 2012.

  • Mootz, F. J. (2003). Holding liability insurers accountable for bad faith litigation tactics with the tort of abuse of process. Connecticut Insurance Law Journal, 9, 467–525.

    Google Scholar 

  • Morgan, R. M., & Hunt, S. D. (1994). The commitment-trust theory of relationship marketing. Journal of Marketing, 58(3), 20–38.

    Article  Google Scholar 

  • 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 

  • Multi-State Market Conduct Regulatory Agreement. (2010). http://www.consumerfed.org/pdfs/Allstate_MCE_Agreement_and_signatures.pdf. Accessed 31 Jan 2012.

  • National Insurance Crime Bureau. (2009). National insurance crime bureau data shows increase in fraudulent claims linked to poor economy (p. 2). https://www.nicb.org//newsroom/press_releases/increase-in-fraudulent-claims-linked-to-poor-economy. Accessed 26 Jan 2011.

  • Nee, V. (1998). Norms and networks in economic and organizational performance. American Economic Association, 88(2), 85–89.

    Google Scholar 

  • New York Alliance Against Insurance Fraud (n.d.) Polling results: New York residents attitude toward insurance fraud (p. 3). http://www.fraudny.com/07_Poll.pdf. Accessed 31 Jan 2012.

  • Palasinski, M. (2009). Testing assumptions about naivety in insurance fraud. Psychology, Crime and Law, 15(6), 547–553.

    Article  Google Scholar 

  • Pitman, R. (2006). Auto injury claimants in New York City vastly different from claimants in the rest of New York State, IRC study finds. Insurance Research Council Press Release.

  • Pugh, T. (2010). Insurance claims in the news 2010, posted March 21, Auto Hail Repair News. http://pdrtechgear.com/blog/2010/03/insurance_claims_in_the_news_2.html. Accessed 31 Jan 2012.

  • Quiggle, J. (2010). No-fault fraud: Cash register for crooks. The Journal of Insurance Fraud in America, 1(1), 10–19.

    Google Scholar 

  • Rallapalli, K. C., Vitell, S. J., Wiebe, F. A., & Barnes, J. H. (1994). Consumer ethical beliefs and personality traits: An exploratory analysis. Journal of Business Ethics, 13, 487–495.

    Article  Google Scholar 

  • Rosenbaum, S., Lopez, N., & Stifler, S. (2009). Health insurance fraud: An overview. The George Washington University Medical Center School of Public Health and Health Services. http://www.rwjf.org/pr/product.jsp?id=50670. Accessed 31 Jan 2012.

  • Schwarcz, D. (2009). Differential compensation and the “race to the bottom” in consumer insurance markets. Connecticut Insurance Law Journal, 15(2), 723–753.

    Google Scholar 

  • Sheth, J. N., & Sisodia, R. S. (2005). A dangerous divergence: Marketing and society. Journal of Public Policy and Marketing, 24(1), 160–162.

    Article  Google Scholar 

  • Sheth, J. N., & Sisodia, R. S. (2007). Raising marketing’s aspirations. Journal of Public Policy and Marketing, 26(1), 141–143.

    Article  Google Scholar 

  • Sheth, J. N., & Uslay, C. (2007). Implications of the revised definition of marketing: From exchange to value creation. Journal of Public Policy and Marketing, 26(2), 302–307.

    Article  Google Scholar 

  • Smith, L. Y., & Roberson, G. G. (1971). Business law—uniform commercial code (3rd ed., p. 1166). St. Paul, MN: West Publishing Co.

    Google Scholar 

  • Stone, D. A. (1994). Promises and public trust: Rethinking insurance law through stories. Texas Law Review, 72, 1435–1444.

    Google Scholar 

  • Sykes, G. M., & Matza, D. (1957). Techniques of neutralization: A theory of delinquency. American Sociological Review, 22, 664–670.

    Article  Google Scholar 

  • Tennyson, S. (2002). Insurance experience and consumers, attitudes toward insurance fraud. Journal of Insurance Regulation, 21(2), 35–55.

    Google Scholar 

  • Tennyson, S. (2008). Moral, social, and economic dimensions of insurance claims fraud. Social Research, 75(4), 1181–1204.

    Google Scholar 

  • Tennyson, S., & Warfel, W. J. (2008). First-party insurance bad faith liability: Law, theory, and economic consequences (pp. 1–19). National Association of Mutual Insurance Companies Technical Report.

  • Torgler, B. (2008). What do we know about tax fraud—an overview of recent developments. Social Research, 75(4), 1239–1270.

    Google Scholar 

  • Torgler, B., Demir, I. C., Macintyre, A., & Schaffner, M. (2008). Causes and consequences of tax morale: An empirical investigation. Economic Analysis and Policy, 38(2), 313–339.

    Google Scholar 

  • Towers Watson. (2010). Economy having a significant impact on insurers’ claim operations, according to Towers Watson. http://www.towerswatson.com/press/1215. Accessed 31 Jan 2012.

  • Van Raaij, W. F., & Pruyn, A. T. H. (1998). Customer control and evaluation of service validity and reliability. Psychology and Marketing, 15(8), 811–832.

    Article  Google Scholar 

  • Vargo, S. L., & Lusch, R. F. (2004). Evolving to a new dominant logic for marketing. Journal of Marketing, 68, 1–17.

    Article  Google Scholar 

  • Widiss, A. I. (1995). Underinsured motorist insurance coverage for amounts awarded as punitive damages in a suit against the tortfeasor: Delving into the dilemma created by diverging public policies and private interests. Drake Law Review, 43, 779.

    Google Scholar 

  • Wilke, R. E. (1978). Fraudulent behavior by consumers. Journal of Marketing, 42(4), 67–75.

    Article  Google Scholar 

Download references

Acknowledgments

The authors express their deep appreciation to Ms. Corrine Iverson, Administrative Assistant, University of North Dakota-Grand Forks, for her research and editorial assistance throughout this project.

Author information

Authors and Affiliations

  1. Department of Marketing, University of North Dakota, Grand Forks, ND, 58201-8366, USA

    William C. Lesch

  2. Department of Strategy and Logistics, BI Norwegian Business School, Nydalsvn, 0442, Oslo, Norway

    Johannes Brinkmann

Authors
  1. William C. Lesch
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Johannes Brinkmann
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to William C. Lesch.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Lesch, W.C., Brinkmann, J. Consumer Insurance Fraud/Abuse as Co-creation and Co-responsibility: A New Paradigm. J Bus Ethics 103 (Suppl 1), 17–32 (2011). https://doi.org/10.1007/s10551-012-1226-5

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-012-1226-5

Keywords

Search

Navigation