A general conclusion from Picard’s survey (2013) is that insurance fraud affects the
design of insurance contracts. In some cases, a deductible can be optimal but usually
some degrees of coinsurance are necessary, particularly when policyholders can manipu-
late audit costs or falsify claims. Another issue is related to the insurers’ incentives of
reducing insurance fraud. There is a free riding issue in competitive markets: Individual
insurers may simply increase their premiums following an increase in ex post average
losses. Some authors have suggested the development of common agencies to develop
common data ...
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