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Deterrence and learning effects in insurance fraud audits

Abstract : Insurance fraud is a serious threat to insurance markets and is tackled through the design of credible and targeted auditing policies. This thesis studies the deterrence and learning mechanisms of insurance fraud audits, especially when service providers (car repairers, opticians, etc.) act as intermediaries between the insurer and the policyholders. The first chapter is an empirical assessment of the deterrence effects of auditing. It was conducted in collaboration with IBM France and PRO BTP, in the context of the deployment of the Solon counter-fraud solution. This assessment shows that incurred audits decrease an optician’s subsequent fraud. More specifically, the more credible the audit threat, the stronger this deterrence effect, emphasizing the importance of commitment in counter-fraud efforts. The second and third chapters examine a dynamic auditing problem where information plays a central role. The auditor interacts repeatedly with non-strategic service providers and can learn about their propensity to defraud from the auditing outcomes. The second chapter relies on a two-period model to show the existence of this learning effect, whose consequence is that it is optimal to audit more at the beginning of the relationship. The third chapter extends this model to an arbitrary or infinite number of periods, and shows that the further away the time horizon, the larger the optimal auditing efforts. Intuition stems from the fact that more auditing in the present, though costly, has a positive informational impact on all future periods. Finally, the fourth chapter combines the deterrence and learning mechanisms in the same dynamic reputation model, with strategic service providers. It reveals a reputation-based deterrence effect, where learning turns deterrence into an intertemporal threat. In other words, a service provider will be deterred more strongly in the present because of the risk of seeing his future reputation deteriorate if he gets caught defrauding.
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Submitted on : Friday, March 5, 2021 - 12:07:08 PM
Last modification on : Thursday, April 22, 2021 - 1:20:03 PM
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  • HAL Id : tel-03160538, version 1



Reda Aboutajdine. Deterrence and learning effects in insurance fraud audits. Economics and Finance. Institut Polytechnique de Paris, 2019. English. ⟨NNT : 2019IPPAX016⟩. ⟨tel-03160538⟩



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