Perceived Ethicality of Insurance Claim Fraud: Do Higher Deductibles Lead to Lower Ethical Standards?

Abstract

Insurance claim fraud costs insurance companies, policymakers, and taxpayers billions of dollars every year and has been described as the second largest white collar crime. The most common insurance fraud activity and one that contributes a significant portion of dollar losses is the practice of padding claim amounts in the event of a loss. One of the largest issues insurance companies face is that policyholders often do not perceive insurance claim padding as an unethical behavior. However, very little research has examined the factors that contribute to such perceptions. Considering how consumers often attempt to justify fraudulent behavior from a fairness perspective, the present work examines how the amount of the deductible in an insurance claim situation can influence feelings of fairness and ethicality. The results of an experimental study show that higher deductible amounts result in stronger perceptions that insurance claim padding is fair to the insurance company, weaker perceptions that the behavior is unethical, and higher proposed claim award amounts. The study also shows, however, that the deductible amount effects are attenuated for consumers who display higher ethical standards as reflected by their scores on the consumer ethics scale. Implications are discussed with respect to the insurance industry, deviant consumer behavior, and general business ethics theory.