Write a 5 page essay on Interventions to Detect Insurance Fraud.However, the behavior of the insured, who is to receive compensation in the event of the risk, is not always honest (Tennyson and Pau, 2

Write a 5 page essay on Interventions to Detect Insurance Fraud.

However, the behavior of the insured, who is to receive compensation in the event of the risk, is not always honest (Tennyson and Pau, 2002). This gap is what many insured individuals use to defraud insurance companies especially automobile insurance companies (Dionne and Laberge-Nadeau, 1999). Most automobile insurance companies are concerned about this vice and are continually using auditing patterns to control the situation (Tennyson and Pau, 2002).

The detection and prevention of fraud is not an easy task. Many companies spend considerable amounts of time and money to detect and prevent fraud (Schiller, 2002). Some companies, however, use auditing patterns to control fraud (Schiller, 2002). This approach is also known as costly state verification and assumes that the insurer can get information about a claim without incurring an auditing cost (Schiller, 2002). The method implicitly assumes that the audit process, which uses auditing technology, always discerns if a claim is honest or fraudulent (Bolton & Hand, 2002). The main discussion usually concerns the design of the contract which often minimizes the insurer’s cost including the cost of the audit and total claim payment (Schiller, 2002). Models using this framework normally use the amount of the claim to make the decision of applying the monitoring techniques. Other works suggest the comparison of deterministic audits against random audits (Artis et al 2002). However, these auditing techniques that are applied in the detection of fraud by these organizations may not always be perfect and the claims may be misclassified at times (Artis et al 2002). This possibility has made many companies consider more accurate methods of fraud detection and subsequently prevention such as the use of data mining and data matching techniques and fraud detection software.