Moral hazard claim-reporting

If, for example, more financial involvement in the firm reduces claim frequency by a reduction in moral hazard, then we would e q)ect that more employee financial involvement would also reduce the number of claim denials on the part of firms. Similarly, since claim-reporting moral hazard is most likely to occur in difficult-to-monitor claims such as back sprains and strains, we would expect that firms offering more financial rewards linked to workers productivity would experience relatively fewer back strain claims as the moral hazard-induced reporting of those claims falls. We examine the empirical evidence associated with these predictions in the next two sections. 

Our hypothesis is that claims seen by the insurer, or firm, as potential claims-reporting moral hazard behavior are more likely to be denied. We expect that the implementation of safety strategies and worker involvement will ameliorate concerns over claims-reporting moral hazard. Hence, in this section we estimate the following logistic claim denial regression ... 

Second, the multinomial estimates provide no corroborative evidence of moral hazard behavior with regard to other (non-HR) results Downsizing has no impact on claim types, increases in the replacement rate do not increase the proportion of lower back sprains, and self-insurance does not lower the proportion of lower back sprains. As the replacement rate increases, the opportunity cost of being out of work on a workers compensation claim falls. Claims-reporting moral hazard will likely increase, especially for injuries (such as lower back sprains) whose work origin is difficult to monitor or detect. Hence, an increase in claims-reporting moral hazard ought to increase the proportion of low back sprains. 

Claims-reporting moral hazard changes with HRM practices,... 

The analysis of this chapter provides little evidence that HRM practices operate solely, or mostly, through a reduction in claims-reporting moral hazard. The only HRM practice that appears to significantly reduce the likelihood of a claim denial is Employee Participation in Financial Returns, which, although consistently exhibiting the expected... 

This doesn t mean that moral hazard isn t important, only that the claims denial and multinomial logit results indicate that HRM practices do not reduce workers compensation solely, or even mainly, through reductions in claims-reporting moral hazard response. 

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