The following master thesis covers the psychological drivers of insurance fraud. In this scientific paper it shall be explained how insurance fraudsters try to vindicate their behavior and which forms of reasoning are therefor used. Insurance fraud itself is defined as a fraud to the detriment of an insurance company by the policy holder or a third party with the aim of obtaining unjustified coverage, demanding a false payment of damages on the merits or to the extent of paying a lower insurance premium. The fraudulent behavior starts with consciously inaccurate information during application and extends up to manipulation in the context of loss. The legal consequences of insurance fraud are the same as of any other fraudulent behavior, like a fine or a short period of imprisonment.
Furthermore the insurance company can claim indemnity demands or recourse or the insured can lose his coverage. It is reckoned that the annual losses of German insurance sector caused by insurance fraud are four billion Euro and that especially in the line of automobile insurance approximately every tenth notification of claim bases on fraudulent background. About 90 percent of insurance brokers report that they already were in contact with fraudulent clients and a common line in the insurance branch states that each tenth notification of claim contains fraud and that ten percent of payments are based on unjustified or fraudulent declarations. In social context insurance fraud is a damage for all insured clients. A higher rate of fraudulent behavior leads to more payments and in conclusion to higher premiums. The increased niveau of premiums furthermore reduces the public welfare of the insured and often leads to smaller profits for the insurance companies. Thereby many small deceptions have a high impact on the insurance companies, because costs of prosecution of these smaller delicts bear no proportion to the outcome.
Basically insurance fraud is not tolerated in society just as any other form of fraud. But on closer inspection and having a regard to the listed numbers concerning insurance fraud it becomes clear, that there exist different standards. In the Europe-wide European social survey 2010 87 percent of respondents declared that insurance fraud is wrong or absolutely wrong.
Table of Contents
1 Introduction
2 Main Part
2.1 Justification with the help of Broad Pervasiveness
2.1.1 Broad Pervasiveness of Insurance Fraud
2.1.2 Psychological drivers of Insurance Fraud on the supposition of Broad Pervasiveness
2.1.3 Behavior on the supposition of Broad Pervasiveness
2.2 Justification under assumption of Triviality
2.2.1 Dimensions of Insurance Fraud
2.2.2 Psychological drivers of Insurance Fraud on the supposition of Triviality
2.2.3 Behavior on the supposition of Triviality
2.3 Blaming the insurance as victim
2.3.1 Occurrence of the phenomenon of Blaming the victim
2.3.2 Psychological drivers of Insurance Fraud on the supposition of Blaming the victim
2.3.3 Behavior on the supposition of Blaming the victim
2.4 Negation of the victim
2.4.1 Negation of the victim in the context of Insurance Fraud
2.4.2 Psychological drivers of Insurance Fraud on the supposition of Negation of the victim
2.4.3 Behavior on the supposition of the Negation of the victim
2.5 Comprehension of the Principles of Insurance
2.5.1 Financial and insurance-linked education in the Population
2.5.2 Psychological drivers of Insurance Fraud under a lack of comprehension of the Principles of Insurance
2.5.3 Behavior under the lack of comprehension of the Principles of Insurance
3 Concluding Remarks
Research Objectives and Focus
The primary objective of this master thesis is to investigate the psychological drivers behind insurance fraud. The paper seeks to explain how perpetrators justify their fraudulent behavior to maintain a positive self-image and which cognitive reasoning patterns are employed to neutralize the perceived illegality of their actions.
- Analysis of psychological justifications, including broad pervasiveness, trivialization, and victim-blaming.
- Examination of cognitive dissonance neutralization in the context of fraudulent insurance claims.
- Investigation of the influence of financial literacy and lack of insurance principle comprehension on fraud behavior.
- Exploration of social factors and the perception of insurance companies as entities worth defrauding.
Excerpt from the Book
2.1.2 Psychological drivers of Insurance Fraud on the supposition of Broad Pervasiveness
Generally the average person appears to be convinced that he or she is better than the average (cf. Alicke and Sedikides 2009). People see themselves as more morally, more honest and less selfish than the general public and these values mean a lot to them (cf. Josephson Institute of Ethics 2009, 2011). Also in their role of customer generally speaking (cf. Vitell et al. 2001) and as insurance policyholder in particular, people see themselves as more morally than the others. Even if they admitted insurance fraud, which is a distinctly unethical act, they still describe themselves as an ethical person (cf. Brinkmann and Lenz 2006). In this context moral in the point of view of the individual is often what serves the personal welfare or this seems to be a justification for a good feeling with the unethical act of insurance fraud. At least it reduces the badness of the deed (cf. Köneke et al. 2015).
People often perceive their close environment in a just as overly positive light as they perceive themselves (cf. Kenny and Kashy 1994). If someone in this close environment is committing insurance fraud, there is being put a better complexion on the act of fraud as if the insurance fraud would have been considered in isolation (cf. Sinclair et al. 2005). The behavior of fellow beings signalizes what is wrong and what is right and thereby shapes the own way of looking at things (cf. Sherif 1936 and Lesch and Baker 2013). This form of groupthink can influence the attitude of one single person so much, that he is convincing himself that the ethical standard of being honest in dealing with insurance does not apply to himself in this particular context (cf. Sinclair et al. 2005). People often display their behavior depending on the situation they are in – even if they are not always aware of this circumstance (cf. Van Boven et al. 1999) - and in this context it is viable to say that a fraudulent environment facilitates fraudulent actions for oneself. Furthermore the very same insurance fraud is perceived as different and non-identical on the assumption of broad pervasiveness in the close environment and then is scored in another, usually better way (cf. Kahnemann and Tversky 2000). In consequence, the fraud appears to be less harmful and offensive as it is when it appears to be pervasive.
Summary of Chapters
1 Introduction: Introduces the definition of insurance fraud and its economic impact on the German insurance sector, highlighting the societal problem of perceived lack of severity.
2 Main Part: Explores various psychological justifications for insurance fraud, specifically focusing on pervasiveness, triviality, victim-blaming, and lack of principle comprehension.
3 Concluding Remarks: Summarizes the key psychological justifications examined and provides reflections on the future of insurance fraud in a digital, less personal sales environment.
Keywords
Insurance Fraud, Psychological Drivers, Cognitive Dissonance, Neutralization, Moral Justification, Pervasiveness, Triviality, Victim Blaming, Financial Literacy, Self-Deception, Insurance Principles, Ethical Behavior, Fraud Prevention, Consumer Behavior, Rationalization.
Frequently Asked Questions
What is the primary focus of this thesis?
The thesis explores the psychological mechanisms that allow individuals to justify committing insurance fraud, focusing specifically on non-professional, "soft" fraud.
What are the central themes discussed in the paper?
The paper covers the role of cognitive dissonance, social influence (groupthink), the perception of insurance companies as victims, and the impact of financial education on fraudulent behavior.
What is the primary research question?
The research seeks to understand how insurance fraudsters vindicate their unethical behavior and what specific forms of psychological reasoning they use to minimize their perceived guilt.
Which scientific methods are utilized?
The paper utilizes a literature-based analysis, drawing on psychological theories and empirical studies from the fields of social psychology, business administration, and insurance research.
What is covered in the main part of the thesis?
The main part is divided into five segments: the justification through broad pervasiveness, the assumption of triviality, blaming the insurance company, the negation of the victim, and the role of the lack of comprehension of insurance principles.
Which keywords best characterize this work?
Key terms include Insurance Fraud, Cognitive Dissonance, Neutralization, Moral Justification, and Psychological Drivers.
How does the "Broad Pervasiveness" argument serve as a justification?
The fraudster argues that because "everyone else is doing it," their own action is no longer an anomaly but a common, normalized practice, which reduces their sense of personal guilt.
Why does "Blaming the Victim" make fraud easier for the policyholder?
By framing the insurance company as a faceless, profit-hungry, or unfair entity, the perpetrator redefines their fraudulent act as a form of "self-defense" or "retaliation" to restore personal justice.
How does the lack of financial education contribute to fraud?
Many consumers do not understand the collective reserve model of insurance. Without this comprehension, they view premiums as investments that must yield a payout, leading to fraud when they feel entitled to a return.
What role does the digital transformation play in future insurance fraud?
The shift to online sales reduces personal contact, increasing the perceived anonymity of the insurance company, which may make it psychologically easier for individuals to commit fraud.
- Quote paper
- Carolin Hutterer (Author), 2017, Psychological Drivers of Insurance Fraud, Munich, GRIN Verlag, https://www.grin.com/document/419067
