A Deep Dive into the Psychology of Insurance Frauds.

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    • Abstract:
      In today's age - one of the biggest causes of concern for all Insurance providers is Insurance fraud, in terms of cost. The currently used systems heavily leverage on Fraud Monitoring Units, Rule engines, Structured data analytics seem to capture fraud to a limited extent. There is a need to relook & possibly revamp our traditional systems of fraud identification and management systems alike. This brings us to explore the need to deep dive into the psychology of insurance fraud and look for non-traditional data proxies, behavioral nudges to accurately identify and take preventive measures. In this paper, we abstract the different fraud scenarios into broader concepts of claims, application, opportunistic and organized fraud. The paper of examines psychology of insurance frauds into motivational factors and neutralization factors. Another lens which is explored here - are the role of societal structures, the idea of inter-subjective, as well as the individual ego centric psychoanalysis. Neighborhood interactions, the elements of insurance contracts themselves (like deductibles), financial stability of the insured and the perceived financial wellbeing of the insurer, internalization of the norms of honesty seem to correlate with psychological motivation for fraud. Delving deep into the personality traits, it has been observed that there is a positive correlation between the dark triad personality traits (Machiavellianism, Subclinical Psychopathy and Subclinical narcissism) and propensity of insurance frauds. Deriving from research on criminology, the paper looks at the different neutralization techniques often displayed by the perpetrators like "vocabularies of adjustment" and "Famous five". The "fair game" perception is quite prevalent in case of insurance as perpetrators often tend to portray fraud as victimless crime. The final section of the paper presents the different portions available to insurers and regulators to provide the right set of nudges to the policyholders. While regulators can influence the decision making by increasing the cost of sanctions, insurers can work on increasing the chances of ensuring fraud detection. The latter can be achieved through alternate and unstructured data sources, investments in data analytics and mining novel complex relationships from the existing datasets. Drawing from the award-winning research in behavioral economics, insurers and insure-techs have added simple yet effective changes in their claims process to effectively "nudge" the customer to be more truthful. The case studies highlighted in this paper show that the early adopters are showing quite promising results which can be gradually adapted and customized by insurers. [ABSTRACT FROM AUTHOR]
    • Abstract:
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