Testing for moral hazard: a longitudinal examination of group life and health insurance in Taiwan

Wen-Yen Hsu () and Carol Troy ()
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Wen-Yen Hsu: Feng Chia University
Carol Troy: Tunghai University International College

The Geneva Papers on Risk and Insurance - Issues and Practice, 2025, vol. 50, issue 4, No 6, 852-880

Abstract: Abstract Like auto insurance, employer-sponsored group health and life insurance (ESHI) uses experience rating, where current-year premium adjustments are positively correlated with the group’s claim history. In Taiwan, ESHI coexists with the national health insurance system, and previous findings based on western data may not hold. We test for moral hazard in ESHI plans offered by a Taiwanese life/health insurer, using a dynamic panel approach that distinguishes moral hazard from adverse selection. Experience rating should incentivise financially responsible employers to boost loss prevention/reduction efforts. Using Tobit models, we find that premium adjustments exert an asymmetric (consistently negative) impact on average claim volume (the loss ratio). However, moral hazard, indicated by negative state dependence (negative correlation between current and lagged values), is absent. The results suggest that experience rating alone cannot mitigate overconsumption of benefits. More varied and flexible approaches to cost control are needed.

Keywords: Moral hazard; Dynamic contracting; Tobit model; Group life and health insurance; Negative state dependence; Taiwan (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1057/s41288-025-00354-3

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