Workers' moral hazard and private insurer effort in disability insurance

Pierre Koning*, Max van Lent

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

While it is well known that supplementary private Disability Insurance (DI) has the potential to increase workers' moral hazard, the extra coverage may also increase incentives for private insurers to reduce caseloads by means of prevention and reintegration activities. With unique administrative data on DI contracts of firms in the Netherlands, this paper aims to disentangle these worker and insurer responses to increased coverage. Supplementary insurance increases the insurers' incentive to lower disability risks, but in our setting it also creates an incentive for the insurers to facilitate partial work resumption of disabled workers who have earnings capacity. Using firm- and time-fixed effects models on the absence and employment rates, we find that insurer effort counteracts workers' moral hazard.

Original languageEnglish
Pages (from-to)1049-1088
JournalJournal of Risk and Insurance
Volume91
Issue number4
DOIs
Publication statusPublished - 2024

Bibliographical note

Publisher Copyright:
© 2024 The Authors. Journal of Risk and Insurance published by Wiley Periodicals LLC on behalf of American Risk and Insurance Association.

Funding

We are grateful for useful comments of seminar participants at VATT in Helsinki, the Vrije Universiteit in Amsterdam, the Essen Health Conference, the KVS new paper sessions in The Hague, the Dutch economists' Day of\u00A02022 in The Hague, Groningen University, and the IRDES-Dauphine Workshop on Applied Health Economics and Policy Evaluation in Paris (2022). Robidus is gratefully acknowledged for giving access to their microdata.

FundersFunder number
VATT
Rijksuniversiteit Groningen

    Keywords

    • disability insurance
    • insurer effort
    • moral hazard
    • private insurance
    • return-to-work policies

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