Unsafe insurance
| Date | 02 October 2017 |
| Pages | 643-655 |
| DOI | https://doi.org/10.1108/JFC-01-2016-0006 |
| Published date | 02 October 2017 |
| Author | Viktoria Dalko |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
Unsafe insurance
Viktoria Dalko
Hult International Business School, Cambridge, Massachusetts, USA and
Harvard University, Cambridge, Massachusetts, USA
Abstract
Purpose –The purpose of this paper is to study life-lossrisk in some life insurance policies and propose
solutionto the problemfound.
Design/methodology/approach –The paper analyzes the expectedpayout for murder-for-insurance. It
presents legalevidence of 179 court cases and conducts criminologicalanalysis. It compares the lack of safety
regulationin life insurance with regulatory actions in selectedfood and automobile safety cases.
Findings –Some life insurance policies create incentives and, therefore, temptation for murder-for-
insurance. The insured can facelife-loss risk from not only the beneficiary but also the life insurance agent
during the term of the policy.
Practical implications –This paper proposesthat defective life insurance policies should be recalled.
Social implications –The proposalhas a policy implicationof eliminating one type of homicide.
Originality/value –This paper is the first study of its kind, as it places the safety of the insurance
consumerin the center.
Keywords Risk analysis,Recall, Consumer safety,Criminological analysis,Murder-for-insurancerisk
Paper type Research paper
Life insurance products are sometimes presented as a way to overcome limited financial
resources: the insured could spend all his savings on personal consumption and still leave
sufficient fund for his survivors. How welldoes this image created by marketing match the
reality?
Inthepast,therewereargumentsthatlifeinsurancepolicieshavecontributed
substantially to the financial stability of the insured and beneficiary. However,
research shows that this is statistically not the case, as life insurance has nearly a zero
correlation with financial vulnerability at any stage in life (Bernheim et al., 2003a,
2003b). If there is no positive impact to overcome vulnerability, then is there any
negative impact of the contract? Are there safety concerns of the millions of life
insurance consumers?
This paper is divided into two parts. The first part reveals the embedded defect in
lifeinsurancepoliciesfromeconomicanalysis, together with evidence from court
cases, and their criminological analysis. Part 2 summarizes lessons learned from the
measures enacted to ensure food and automotive safety and proposes the recall of life
insurance policies that exhibit serious safety defects. Even though our subject of
investigation is so crucial, we were surprised to find that so far academic research had
largely neglected the issue.
1. Defective life insurance policies
1.1 Insurance industry: a brief review
Insurance policies do not insure for physical risks. Rather, they are intended to reduce the
financial risks caused by related physical risks. The literature of insurance economics has
shown that modern insuranceis only about financial transactions (Arrow, 1971). The virtue
Unsafe
insurance
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Journalof Financial Crime
Vol.24 No. 4, 2017
pp. 643-655
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-01-2016-0006
The current issue and full text archive of this journal is available on Emerald Insight at:
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