Under which market condition is fraudulent activity by unauthorized insurers more likely to occur?

Fraudulent activity by unauthorized insurers is more likely to occur in hard markets. A hard market is characterized by increased premiums and a reduction in the availability of insurance coverage due to a higher frequency of losses or claims. In these conditions, consumers may feel pressured to seek out coverage from any available source, which can include unauthorized or unlicensed insurers. These unauthorized insurers may take advantage of individuals looking for insurance solutions when traditional, authorized providers are unable or unwilling to offer coverage at competitive rates.

In contrast, during soft markets, there is an oversupply of insurance coverage with lower premiums, which generally reduces the necessity for consumers to seek out unauthorized options. This environment can lead to less fraudulent activity because the legitimate market is more accessible and attractive. Medium or average markets typically exhibit characteristics that don't strongly align with the risk factors that lead to fraud; hence, fraudulent activities are not as pronounced in these scenarios. Thus, the conditions of a hard market create a perfect storm for unauthorized insurers to exploit consumers, leading to an increased likelihood of fraudulent activity.