Academic journal article Journal of Risk and Insurance

Moral Hazard in the French Workers' Compensation System

Academic journal article Journal of Risk and Insurance

Moral Hazard in the French Workers' Compensation System

Article excerpt

ABSTRACT

The study investigates the level of moral hazard in the French workers' compensation system. Characteristics of the French system are presented, and similarities and differences relative to the system in the United States are noted. Levels of both real and nominal moral hazard are calculated for France and are compared to values in the U.S. The results indicate that France experiences a lower level of real moral hazard but a higher level of nominal moral hazard.

INTRODUCTION

The French system of workers' compensation is very similar to the American system. However, two important differences are that the French system provides a lower wage replacement percentage during the initial days of disability, and it does not impose a waiting period. The purpose of this study is to compare the levels of moral hazard in the two countries to determine if the French system produces different levels of moral hazard.

PRIOR STUDIES

Several authors have studied workers' compensation in the United States, and recent articles concerning moral hazard and workers' compensation include Butler (1983), Butler and Worrall (1983), Chelius (1982), Chelius and Kavanaugh (1988), Krueger and Burton (1990), Worrall and Appel (1985), Leigh (1985) and Butler and Worrall (1991). The majority of these studies indicate that claim frequency tends to increase at a rate that is faster than the rate of increase in indemnity benefits, and these findings suggest that moral hazard is present. The concept of moral hazard is not widely studied by French academicians. An extensive literature search of articles in France yielded only one article (Volatier, 1989) which briefly mentioned the concept which is known as le risque moral.

The 1991 study by Butler and Worrall summarizes the ways in which moral hazard develops. As the indemnity benefit amount increases, employees may take more risks, because the cost of lost income has decreased. Further, because the increase in payments results in higher premiums or payments by employers, employers may initiate additional safety measures. The net of these two effects is referred as "risk bearing" or "real" moral hazard. Another form of moral hazard can occur when an employee reports a claim for a certain level of injury for which he/she would not have reported a claim under a lower benefit amount or when an employee prolongs the recovery time. Employers may react by more closely monitoring claims, and the net of the employees' and employers' effects is "claims bearing" or "nominal" moral hazard. The uniqueness of the 1991 Butler and Worrall study is that it separates and measures both forms of moral hazard. In this paper, the technique of Butler and Worrall is applied to the data from the French system.

THE FRENCH AND AMERICAN SYSTEMS OF COMPENSATION FOR EMPLOYEE INJURIES

In France, work related injuries are known as accidents du travail, and the system compensating injured workers was begun in 1898. The French system has many similarities to the American system, begun 13 years later, and comparisons of the two systems are presented in this section.' At their onset, neither system covered all employees; however, over time both systems have increased their scope. Currently, all employees in France, except the self-employed, are covered by the law. Similarly, in the United States, all workers are covered either by state or federal workers' compensation laws, except domestic and agricultural workers (in some states) as well as some employees in states with numerical exemptions. In both France and the U.S., the form of liability is strict, and workers' compensation benefits are the exclusive remedy of the employee against the employer for jobrelated injuries.

In France, self insurance for employee injuries is not permitted; further, insurance for employee injuries is only available from the government. The French government also administers the funding for the national health care program; however, premiums for the program of worker injuries as well as the payments to injured workers and their health providers are accounted for separately from respective amounts for non-work related health care. …

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