Business Decision Making Project, Part 3

Business Decision Making Project, Part 3.

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Business Decision Making 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.

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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, “inferential statistics are techniques that allow us to use these samples to make generalizations about the populations from which the samples were drawn.” (, 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 all information or data that is made available; instead, inferential statistics 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, 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.

Business Decision Making Project, Part 3

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