Insurance contracts incentivize exaggerated loss claims, impacting coverage for all.
Insurance contracts can be tricky when it comes to figuring out how much money should be paid out for losses. Sometimes, people know exactly how much they've lost, but it's hard to prove to the insurance company without spending money. A study found that if insurance gives more money for higher losses, people might try to exaggerate their losses to get more money. The study looked at different ways to handle insurance claims and found the best way to do it.