Two simple models of insurance fraud

We show a simple approach to modelling insurance frauds, both ex-ante (with respect to the insured event), in the form of false accidents and staged events, and ex-post, in the form of inflated bills and buildups. Optimal amounts of (under)coverage and excess claims are obtained from the maximizing behavior of policyholders under perfect competition and fraud detection activity by the insurance companies. In both cases, the effect of frauds is to reduce insurance coverage and increase competitive premiums. Numerical results are calculated using plausible parameter assumptions