The Economics of insurance fraud investigation: Evidence of a Nash Equilibrium

The behavior of insurance companies investigating insurance fraud follows one of several Nash Equilibria under which companies consider the cost savings on a portion, or all, of the total claim. This behavior can reduce the effectiveness of investigations and cost reductions if the suboptimal equilibrium prevails and lead to higher insurance premiums. Alternative cooperative arrangements are examined that could reduce or eliminate this potential inefficiency.

Keywords: Insurance fraud, Nash equilibrium, Automobile medical payments, Liability insurance