Deterring Fraud: The Role of General Damage Awards in Automobile Insurance Settlements
نویسنده
چکیده
Awards for pain and suffering and other non-economic losses account for over half of all damages awarded under third-party auto insurance bodily injury settlements. This paper hypothesizes that insurers use general damage awards to reduce the incentive to submit exaggerated claims for specific damages for injuries and lost wages. Consistent with this hypothesis, the paper finds evidence using data on over 15,000 closed bodily injury claims that special damage claims that exceed their expected value receive proportionally lower general damage awards than claims that do not. Among the implications of this work is that the aggregate cost of auto insurance fraud may be less than typically estimated since insurers appear to compensate for suspected fraud by underindemnifying general
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