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Adverse selection in disability insurance; empirical evidence for Dutch firms

Author

Listed:
  • Anja Deelen

    (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract
In this paper, we analyse the employers' decision to opt out of the public disability insurance (DI) system. For the empirical analysis we use an extensive panel of Dutch employers for the period 2000-2002. In this paper, we analyse the employers' decision to opt out of the public disability insurance (DI) system. For the empirical analysis we use an extensive panel of Dutch employers for the period 2000-2002. We find that cross-subsidies employers pay or receive under the current public insurance system of experience rating contribute to the opting out decision. Since cross-subsidies are risk related, this is an indication for the presence of adverse selection: high risk (cross-subsidised) firms tend to remain publicly insured, while low risk (cross subsidising) firms tend to opt out. This finding is supported by the fact that risk related characteristics such as the sector of industry and the composition of the work force by age and gender contribute to the explanation of the opting-out decision. Adverse selection could be diminished by setting public premiums in such a way that they are more actuarial fair in the long run. As a result, the risk profile of firms opting out will become more similar to that of firms not opting out.

Suggested Citation

  • Anja Deelen, 2005. "Adverse selection in disability insurance; empirical evidence for Dutch firms," CPB Discussion Paper 46, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:46
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    References listed on IDEAS

    as
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    Cited by:

    1. de Groot, Nynke & Koning, Pierre, 2016. "Assessing the effects of disability insurance experience rating. The case of The Netherlands," Labour Economics, Elsevier, vol. 41(C), pages 304-317.
    2. Nynke de Groot & Pierre Koning, 2022. "A burden too big to bear? The effect of experience‐rated disability insurance premiums on firm bankruptcies and employment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(1), pages 214-242, January.

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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