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Innovation in long-term care insurance: Joint contracts for mitigating relational moral hazard

Peter Zweifel

Insurance: Mathematics and Economics, 2020, vol. 93, issue C, 116-124

Abstract: A recent innovation is joint long-term care (LTC) insurance policies covering two related individuals. This contribution purports to find out whether they have the potential of mitigating relational moral hazard (RMH) effects. Intra-family moral hazard has been suspected of being responsible for the sluggish development of private LTC insurance. The parent, anticipating the informal care provided by a family member LTC, is tempted to buy less LTC coverage. The family member (or more generally, the partner of a senior person), knowing that the bequest is protected by LTC insurance, has less incentive to provide informal care. Since a joint LTC policy makes senior and partner decide simultaneously rather than sequentially, it may lead to a partial internalization of RMH effects by turning coverage purchased by the senior and informal care provided by the partner from strategic substitutes into strategic complements under certain conditions.

Keywords: Innovation in insurance; Joint contracts; Long-term care insurance; Relational moral hazard (search for similar items in EconPapers)
JEL-codes: D19 G22 J14 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.insmatheco.2020.04.002

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