What financial consequence can result from paying a high number of fraudulent claims?

What financial consequence can result from paying a high number of fraudulent claims?

• A. Lower administrative costs.
• B. Higher premiums.
• C. Reduced risk.
• D. Increased dividends to policyholders.

Answer: (B)

Fraudulent claims raise an insurer’s costs, including investigation, payout, and larger reserves. To cover these higher anticipated losses and protect profitability, insurers raise premiums for policyholders. So the financial consequence is higher premiums. The other options don’t fit because fraud increases costs and risk, not lowers them, and profits to policyholders through dividends would typically shrink rather than grow.

Fraudulent claims raise an insurer’s costs, including investigation, payout, and larger reserves. To cover these higher anticipated losses and protect profitability, insurers raise premiums for policyholders. So the financial consequence is higher premiums. The other options don’t fit because fraud increases costs and risk, not lowers them, and profits to policyholders through dividends would typically shrink rather than grow.