Providers’ affiliation, insurance and collusion - INRAE - Institut national de recherche pour l’agriculture, l’alimentation et l’environnement
Journal Articles Journal of Banking and Finance Year : 2008

Providers’ affiliation, insurance and collusion

Abstract

This paper provides a theoretical analysis of the benefits for an insurance company to develop its own network of service providers when insurance fraud is characterized by collusion between policyholders and providers. In a static framework without collusion, exclusive affiliation of providers allows insurance companies to recover some market power and to lessen competition on the insurance market. This entails a decrease in the insured's welfare. However, exclusive affiliation of providers may entail a positive effect on customers' surplus when insurers and providers are engaged in a repeated relationship. In particular, while insurers must cooperate to retaliate against a fraudulent provider under non-exclusive affiliation, no cooperation is needed under exclusive affiliation. In that case, an insurer is indeed able to reduce the profit of a malevolent provider by moving to collusion-proof contracts when collusion is detected, and this threat may act as a deterrent for fraudulent activities. This possibility may supplement an inefficient judicial system: it is thus a second-best optimal anti-fraud policy.

Dates and versions

hal-04398255 , version 1 (16-01-2024)

Identifiers

Cite

Jean-Marc Bourgeon, Pierre Picard, Jerome Pouyet. Providers’ affiliation, insurance and collusion. Journal of Banking and Finance, 2008, 32 (1), pp.170-186. ⟨10.1016/j.jbankfin.2007.09.012⟩. ⟨hal-04398255⟩
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