Insurance Fraud: Crime in Vancouver - Literature review Example

Insurance Fraud: Crime in Vancouver Insurance Fraud has become a common social phenomenon, affecting many insurance companies. For a long time, lack of clear definition of insurance fraud made it difficult to bring the perpetrators to Justice. With the statistics indicating that the insurance Industry in UK has been losing close to £2.1 billion annually, it has been necessary to approach the problem from a wider perspective (Button, Pakes, & Blackbourn, 2014). According to the author, the challenge is complex, and does not seem to reduce even through the tough measures taken by insurance companies. The author is quick to point out that it will be necessary to apply other approaches, such as the psychological perspective. However, Button, Pakes, & Blackbourn (2014), have not indicated how the field of psychology can be incorporated in fighting insurance fraud. The psychological perspective was applied to insurance fraud, with an aim of establishing motives behind this form of crime (Dodd, 1998). The author states the importance of applying the psychological perspective for the purpose of ensuring that the reasons behind the insurance fraud can be established. Like many psychological proponents, Dodd (1998), was more concerned on answering the question ‘why?’ rather than just explaining the behavior and punishing the culprits. The author argues that without explaining the main motives behind such crimes, it was going to be difficult to have an amicable solution that would see the vice been addressed. The main weakness is that the book does not provide measures that can be taken to prevent insurance crime. Its main concern is that the establishment of the causes of crime. This may explain why the psychological perspective is yet to make a great impact in the criminal justice system, owing to the fact that it is one of the newest methods. Nevertheless, many researchers in psychology and criminology have tried to explain the motive behind insurance Fraud. In their study on Insurance Fraud, Kapardis, and Krambia-Kapardis (2004), state the importance of profiling the offenders. In many insurance companies, the offenders are never prosecuted or made public, a situation that is more likely to enhance the vice. The researcher insinuates that what the employees in the insurance company earn is not enough to meet their socially desired goods and self-esteem (Bolton, & David, 2002). The study also argues that the soft and hard insurance frauds committed by the insurance policy holders are to satisfy certain internal motives. Another study by Cialdini (2007) also echoed similar sentiments, indicating that individuals who want to have some social and economic gains commit the Insurance Fraud cases. These include both the employees, and the insured, who defraud insurance companies leading to major losses. Despite the fact that these studies state motives making people engage in insurance fraud, they have weaknesses. For instance, they do not state what the Insurance Companies do to address the vice. For instance, if the employees engage in insurance fraud for economic reasons, does it mean that the salaries and wages they get are not enough to meet their needs and maintain their social status? Secondly, will the increase in wages and salaries reduce the tendency and urge to commit insurance fraud? The articles have also not been able to explain why certain people, despite being in top management positions, will engage in criminal behaviour. For instance, most of these people are economically stable, and have all the socially desired goods. They have job security, and have a lot of influence in many functions within an institution. The white color crimes, which include insurance fraud, are attributed to the existing corporate culture (Schachter, & Levi, 2013). The authors indicated that most of the companies lack proper measures to curb fraudulent acts and prosecute offenders. A majority of companies create an enabling environment that facilitates fraudulent behavior. Secondly, Schuchter & Levi (2013) cited motivation and the absence of ‘fraud-inhibiting inner voice’ as other major factors leading to insurance fraud. The motivation to commit crimes occurs out of economic pressures or weaknesses within an organization. If no one is arrested and prosecuted, offenders get the impetus to perpetuate the vice. Further, Schuchter, & Levi (2013) indicated that the ‘inner voice’, which in this case could refer to conscience, could deter fraudulent behavior. However, with the enabling environment and economic pressures, the perpetrators lose their conscience hence committing offenses. The argument presented in this book is credible owing to the fact that it represents accounts of many offenders who were interviewed. It focuses on the issue of insurance fraud from a wider perspective including the people’s morality and weaknesses within the companies. However, its main weakness is that it does not explicitly indicate what need to be done to eradicate insurance fraud. According to Duffield & Grabosky (2004), insurance fraud can be understood by focusing on external factors such as the economy. For instance, many insurance policyholders will engage in fraudulent crimes because they seek protection from huge economic losses they may incur. A person who has had his vehicle damaged may not accept that he was directly involved. Most of them will exaggerate the losses with an aim of gaining from the insurance companies. Duffield & Grabosky (2004) also introduced the theory of neutrolization to describe the delinquency behaviour of the offenders. One of the aspects of the theory is that the offenders always find an external factor that they can blame for their delinquency. For instance, the economic hardships are blamed for insurance frauds. With the current economic hardship characterised by decreased employment opportunities and high cost of goods and services, most people do not have a lot of disposable income (Silverstone & Horward, 2005). Most of them cannot afford to replace the damaged or stolen property, hence taking the advantage of the insurance companies (Clarke, 1999). They may bribe the investigating official to have them misrepresent the case to the advantage of the policyholders. This argument by Duffield & Grabosky, is credible, but also blames the external environment, and appearing to exonerate the offender. According to Cohen & Felson (2000), all forms of crimes can be understood from a sociological perspective. The authors focused mostly on the frauds that are perpetuated by employees in the insurance companies. They engage in illegal dealings, such as assisting the insured to contravene the principle of utmost good faith. The researchers applied the strain theory in explaining fraudulent crimes in the insurance sector. The main proponent of the strain theory is Robert Merton (Cohen & Felson, 2000). According to the theory, people commit crimes due to limited opportunities and the need to achieve the socially desired goods. For instance, some of the main challenges facing many people in the UK include the downsizing in many companies, and lack of enough employment opportunities. As a result, people are economically challenged. Secondly, with the unpredictable economic situation, job security anxiety has increased. Some of the people working in the Insurance companies will seek to use any opportunity available to enrich themselves, sometimes using the fraudulent means. In some cases, the salaries and wages are not enough to respond to the increasing cost of living. This kind of environment, according to Cohen & Felson (2000), prompts most people to commit crimes. However, this study does not tell why some people, despite being in the same economic situations as the perpetrators of insurance crimes, remain honest in their work. This study has also a weakness in the sense that it seeks to exonerate the perpetrators from the crimes committed. The above studies have not directly linked the offenders to the crime. They only blame issues of economic issues, and other factors such as need for high esteem, job security, and the need to maintain status quo (Coenen, 2009). One of the main question is whether insurance fraud is premeditated and executed by people, who are just greedy in nature. Secondly, there is a question of whether fraud can be blamed on the perpetrators without blaming the external factors. These questions can be answered by focusing on the studies by Groff (2007), who sought to explain fraudulent cases from a sociological perspective. According to the researcher, the environment plays only a small part in influencing people to commit crimes. From the rational-choice theory that the client uses to explain the fraudulent behavior, it is argued that the offenders make a rational choice to commit crime. In expounding the rational-choice theory, Clarke & Eck (2003) indicated that people commit crimes out of choice. This means that they have planned and factored in all the positive and negative consequences. This dismisses the claims by some psychological studies that the crimes can be committed unconsciously (Clarke & Eck, 2003). The rational theory indicates that perpetrators are aware of the consequences of their criminal activities. In the Insurance companies for instance, there are policies that guide the behaviour of employees, as well as the relationship with policyholders. People understand the implications of engaging in criminal activities, such as fraud (Skiba, 2014). Hence, the perpetrators of the insurance fraud are aware of such consequences but decide to go ahead with the crime. Andresen & Geographer (2006) echoed similar sentiments by indicating that fraudulent behavior can be understood by focusing on the cost-benefit analysis. This means that people focus on the benefits and the potential outcome of their actions. If the benefits are higher, then people are more likely to commit crimes. The benefit will be in the form of monetary gain that one can make, against the punishment they may receive for the crime. In most cases, the law has failed to ensure that sentences given, or fines, are proportionate to the crimes committed. As a result, this has opened an opportunity for people to engage in criminal behavior. Andresen & Geographer (2006), indicate that the fraudulent cases can be prevented by reducing the opportunities for people to commit crime. This may include the need to improve efficiency and effectiveness in the insurance companies, and fostering strict zero-tolerance programs. It should be made clear that the fraudsters will be investigated and prosecuted once investigations prove that an insurance crime was committed. Clarke (2009) notes that the main reason why there are increased fraudulent cases was that the insurance company was reluctant to conduct investigations and prosecute the perpetrators. This creates a loophole that is being exploited by the offenders (Hymes & Wells, 2013). The two articles are credible in the sense that they reflect the nature of the insurance companies in UK. Most of them lack a clear policy on how the fraudulent cases will be dealt with. The companies do not have adequate systems that are able to detect frauds, and provide evidence when the investigating officers need it. Further, some insurance companies lack the zero-tolerance programs that will ensure that proper investigations are conducted and the perpetrators of fraudulent crimes arrested and prosecuted. With the cases of fraud becoming more complex, it is imperative that the insurance companies obtain the anti-fraud technology. This will play an imperative role in fostering sanity within the insurance industry. Summary of article findings Most of the articles indicate that insurance fraud is largely caused by the psychological motives. The articles seek to reiterate that people are generally good, and always wish to do what is morally right. However, due to the external pressures, people become irrational, hence making wrong decisions. The articles, therefore, propose that if the external factors that prompt people to commit crimes are addressed, then it will be possible to mitigate the fraud incidences. For instance, some of the issues that may be addressed include creating more employment opportunities, low the cost of living, and increase wages and salaries. However, it is not clear how the improvements in these areas will assist in reducing insurance fraud. For instance, people who enjoy job security, and who earn huge salaries also commit insurance frauds. This explains why the sociological perspectives, such as rational theory, explain that crimes are premeditated. People who are rational and aware of the consequences of engaging in fraudulent cases have been accused of perpetuating the same. Conclusion The current studies are inconclusive on how psychology can be used to study and explain insurance fraud. Most of the studies lack the holistic approach needed to address the challenge of insurance fraud. This is demonstrated by the fact that many studies have not offered any single solution towards the elimination of insurance fraud. A majority of the studies have only stated the importance of understanding the motives behind the behavior. Further, some of them are theoretical in nature, and lack the practicability in solving different challenges. This is especially, the psychological perspectives, which still require some time before they can be incorporate in the field of insurance. There is a discrepancy between the psychological and sociological perceptions of crimes. The future studies need to harmonize this, in order to ensure that these fields become more reliable in solving insurance fraud. It is proposed that more research on the psychological and sociological intervention to insurance fraud needs to be done through future studies. References Andresen, M. & Geographer, C. 2006, a spatial analysis of crime in Vancouver, British Columbia: a synthesis of social disorganization and routine activity theory, Volume 50(4), Pages 487-502. Bolton, J. and David J. 2002. "Statistical Fraud Detection: A Review." Statistical Science. 17.3 (2002): 235-249. Button, M., Pakes, F., & Blackbourn, D. (2014) ' All Walks of Life: A Profile of Household Insurance Fraudsters in The United Kingdom', Security Journal, 2014. Cialdini, R. 2007. Influence: The Psychology of persuasion, Harper Business; Rev. Ed., 1st Collins Business Essentials Ed edition Clarke, M. 1999"The Control of Insurance Fraud, A Comparative View." The British Journal of Criminology. 30.1 (1990): 1-23 Clarke, V. & Eck, J. 2003. Becoming a problem solving crime analyst, Jill Dando Institute of Crime Science University College London Clarke, V. 2009, understanding, anticipating and reducing demand for stolen goods, Policing and Reducing Crime Unit Research, Development and Statistics Directorate Coenen, T. 2009 Expert Fraud Investigation: A Step-by-Step Guide, 1 edition, Wiley Cohen, L. & Felson, M. 2000. Social Change and Crime Rate Trends: A Routine Activity Approach, American Sociological Review, Volume 44(4), Pages 588-608 Dodd, N.J. (1998) 'Insurance Claims Fraud: Applying Psychology to the Reduction of Insurance Claims Fraud'. Insurance Trends, vol. 18. Duffield & Grabosky (2004). Psychology of Fraud, Trends & Issues in crime and criminal Justice No. 199. ISBN 0 642 24224 0 ISSN 0817-8542 Groff, E. 2007. Simulation for Theory Testing and Experimentation: An Example Using Routine Activity Theory and Street Robbery, Journal of Quantitative Criminology, 2007 Volume 23(2), Pages 75-103. Hymes, L. and Wells, T. . 2013, Insurance Fraud Casebook: Paying a Premium for Crime, 1 edition, Wiley Kapardis, A. and Krambia-Kapardis, M., 'Enhancing Fraud Prevention and Detection by Profiling Fraud Offenders', Journal of Criminal Behaviour and Mental Health, vol. 14,no. 3, 2004. Skiba, M. 2014.Phenomenological Study of the Barriers and Challenges Facing Insurance Fraud 1 Investigators, Journal of Insurance Regulation, Volume JIR-ZA-33- 04, Page Silverstone, H. and Howard R. 2005. Fraud 101: Techniques and Strategies for Detection. Hoboken, New Jersey: John Wiley & Son, Inc. p. 6. ISBN 978-0471721123. Schuchter, A. & Levi, M., 2013. The fraud triangle revisited. Security Journal, 2(13), 1-24. Read More