# Business Decision Making Project, Part 3

Project Part III

Auto insurance fraud comes in many
forms and is committed by many different types of individuals.  In order
for the industry to gather data on insurance fraud, we must make some
inferences.  By using data collected from a sample population, the
insurance industry can make some generalizations regarding insurance
fraud.  Investigators are also able to use data to predict how much fraud
will increase or decrease in coming years.

The use of inferential statistics
when evaluating fraudulent claims can be used to evaluate a multitude of
questions, variables, and possible solutions. The data which is collected can
be used to adjust operations to benefit the insurers, as well as the insured.
According to laerd.com, “inferential statistics are techniques that allow us to
use these samples to make generalizations about the populations from which the
samples were drawn.” (laerd.com, 2013). The sample data is collected,
assessed and then found in close relation to an algebraic formula that
represents the data in the most accurate light. It is not feasible to obtain
uses a small sample that is representative of the greater population. In order
to make predictive inferences in fraudulent insurance claims an estimation of
parameters must first be assumed, and then the statistical hypothesis must be
tested.

One statistic that we were able to
find is on the increase of fraud among senior citizens.  According to
insurance-fraud.org, fraud will increase among people aged 60 and over due to
the increase in the older population.  The website infers that as the
population gets older, the amount of fraud among this population will increase
as well.  (2014)  This website also indicates that America’s ethics
and values have declined since 1960, creating more tolerance for fraud. Seniors
are also worried about their incomes and may be more tempted to commit fraud
because of waning social security funds and increasing debt.

The Insurance Information Institute
released information on the top ten questionable claims by insurance type. The
most questionable claims came in the form of personal property claims, which
include homeowners and renters insurance claims.It is harder to prove fraud on
these types of claims, which makes them an easier target for fraud. Secondly
was Commercial property fraud and then Workers Compensation claims. Based on
this data you can infer that these claims do not have a tangible item to claim.
In an auto insurance claim, an adjuster can see that a loss occurred by
inspecting the vehicle damages.  In a homeowners or renters insurance
claim for property damage, an insured party can say they had their computer and
other electronics stolen when they had not.  It’s hard to fight against
fraud because the item isn’t actually there (whether it was stolen or doesn’t
even exist) to inspect. Very similar to workers compensation, an employee can
say they got hurt or is emotionally stressed you may not be able to see the
injury.

Fraud has become a
major concern for many businesses as well as insurance companies and other
entities. It is important for a company to take the proper precautions to
prevent and detect fraud. Companies should have the appropriate internal
controls in place and employ routine audits to help ensure that fraudulent
activity is not taking place. Insurance companies should also abide the
legislation put out by its governing bodies. A publically traded company’s
primary goal is to maximize its shareholders value; in order to do this; a
company’s management must protect its investors from the occurrence of fraud.

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