Question

Fraud prevention involves two fundamental activities: (1) a hotline for tips, and (2) assessing the risk of fraud and developing concrete responses to mitigate the risks and eliminate opportunities for fraud. What are the two fundamental activities involved in fraud prevention?

1) A hotline for tips and assessing the risk of fraud
2) Developing concrete responses to mitigate the risks and eliminate opportunities for fraud
3) Assessing the risk of fraud and developing concrete responses to mitigate the risks and eliminate opportunities for fraud
4) A hotline for tips and developing concrete responses to mitigate the risks and eliminate opportunities for fraud

Answer 1

Fraud prevention in the context of insurance companies involves assessing the risk of fraud and developing responses to reduce this risk, alongside providing a hotline for reporting tips. These activities aim to manage moral hazard and encourage behaviors that minimize the likelihood of fraud. Effective strategies also include incentivizing businesses to maintain robust security systems.

Step-by-step explanation:

The two fundamental activities involved in fraud prevention are:

1. Assessing the risk of fraud and developing concrete responses to mitigate the risks and eliminate opportunities for fraud.
2. A hotline for tips.

Insurance companies implement various strategies to reduce the effects of moral hazard, such as conducting investigations and monitoring behaviors that may indicate fraudulent activities. Moreover, they may incentivize businesses to implement and maintain high-level security measures, like security and fire sprinkler systems, by offering lower insurance rates, which indirectly help in fraud prevention. Effective crime prevention programs aim to increase the costs of committing a crime, therefore acting as a deterrent and lowering the overall crime rate to a level where the benefits of additional prevention are balanced against the costs.