Fraud and Corruption in the Insurance Industry: An Austrian Perspective
Insurance fraud, while not a new problem, has recently taken on gigantic steps to becoming a leading crime problem through the world. In this chapter, the basic underlying principles of insurance are presented as well as some of the underlying reasons for
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oduction In democratic countries economy only functions, if basic principles are respected. Evidence of this thesis can be dramatically found by reviewing the history of countries in transition. After World War I and World War II, Germany, Austria and other European countries experienced a dramatic breakdown in the basic principles of law. Immediately after the breakdown of the monarchy and the Nazi regime, banking systems were destroyed, money was lost, and a black market developed in Germany, Austria and other European counties. These markets were ruled by violence, fear and organized criminals. People did not trust each other as well as the public institutions, and law and order were not functioning. The basic principles in a stable democratic country are: 1 . Pacta sunt servanda (1) 2. Uberimae fidei (2) Edelbacher (personal experiences) served on several missions by UNO and OSCE in Central Asia between 1999 and 2005. During the time he spent on these United Nations missions to countries in the midst of political turmoil, he immediately recognized that these principles where not fully respected in some of Central Asian countries. For example, rules and regulations of a banking system were not in power in one of these countries. People lost their money deposited in
M. Edelbacher (*) Academic Council of the United Nations, System Liaison Office Vienna, Vienna, Austria M. Theil Institute of Risk Management and Insurance, Vienna University, Vienna, Austria e-mail: [email protected] © Springer International Publishing AG, part of Springer Nature 2018 P. C. Kratcoski, M. Edelbacher (eds.), Fraud and Corruption, https://doi.org/10.1007/978-3-319-92333-8_9
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the banks, broke down, and were no longer functioning shortly after the democracies were in transition. The people had no trust in the banking system and avoided saving money in the banks.
Basics of Insurance The idea of insurance was originally developed to protect human beings against the consequences of natural disasters and other catastrophes which would otherwise ruin their lives if they did not have some relief from their losses. Theil (2012, p. 279) sums up the underlying principles followed by insurance companies. Theil states, “The main competence and therefore, the main reason for existence of insurance companies is their unique capability of dealing with risks other economic entities are unable or barely able to handle. In particular, the core techniques that insurance companies to manage risk are risk selection, risk pooling, building of reserves, and further transfer of risk”. Thus the basic principles of insurance during the present time are based on the idea of solidarity and sharing of risks. The group, through their purchases of policies, contributes to the solution of the problem of the individual who may have suffered a tremendous loss as a result of some form of a disaster. This notion of solidarity can be summed up in the following proverb: “A sorrow shared is a sorrow halved”, as the proverb goes, or
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