Sunday, July 15, 2012

Beware of staged car accidents.

Good morning economists! Did you know that the average car accident can cost the insurance companies anywhere between $85.000-$105.000? Innocent information you may say, but nowadays this is just another tool in the hands of fraudsters.

Enter staged accidents where the culprits are on the lookout for opportunities to claim money from insurance companies. Just watch the video and you will understand.



The problem with such schemes except from the probability of bodily harm, is that insurance premiums are increasing and lots of people can no longer afford paying for insurance. In economics these staged accidents are examples of moral hazard and adverse selection. In the case of moral hazard as far as drivers insurance is concerned, we observe the phenomenon of people driving recklessly because they have insurance which will cover any potential accident.

In the case of adverse selection, individuals with higher risk of having an accident seek to insure the maximum amount for collision damage.

Unfortunately people tend to come up with ways to exploit weaknesses in the insurance system in order to make money. So next time you are out there driving, keep your eyes on the road and watch for staged accidents.

Have an accident free day!

3 comments:

  1. I was totally unaware of such kind of things. I am shocked to know that people can even create artificial accidents for money making. Thanks for sharing this useful information. I think the companies must strengthen their guidelines and have a hold on such craps.

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    1. Unfortunately I blame the condition of the economy for the new innovative ideas to defraud innocent people. Thanks for reading my blog.

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