Which element of the fraud triangle is most directly illustrated when an insurer neglects to pay a legitimate claim?

• A. Incentive/Pressure
• B. Ethical lapse (lack of integrity)
• C. Rationalization
• D. Opportunity

Answer: (B)

Verified step by step guidance

1. Understand the fraud triangle, which consists of three elements: Incentive/Pressure, Opportunity, and Rationalization. These elements explain why individuals commit fraud.
2. Analyze the scenario where an insurer neglects to pay a legitimate claim. This action reflects a decision that involves ethical considerations and integrity.
3. Consider the element 'Ethical lapse (lack of integrity)' as it directly relates to the moral decision-making process of the insurer. This is not part of the fraud triangle but is mentioned in the problem as a correct answer.
4. Evaluate the fraud triangle elements: 'Incentive/Pressure' refers to external or internal pressures that motivate fraud, 'Opportunity' refers to the ability to commit fraud due to weak controls, and 'Rationalization' refers to the justification of fraudulent actions.
5. Conclude that the most relevant fraud triangle element in this scenario is 'Opportunity,' as neglecting to pay a legitimate claim could stem from the ability to exploit weak oversight or controls. However, the problem specifies 'Ethical lapse (lack of integrity)' as the correct answer, which is outside the fraud triangle framework.