The role of private insurance in governing work-related risks: A law and economics perspective

This contribution focuses on the governance of industrial accidents and occupational diseases. Prevention of work-related accidents and diseases and compensation of employee-victims can be the subject of public regulation, such as OHS regulation and social security. However, also private actors may be involved in the regulation of work-related accidents, especially when compensation of damage caused by work-related risks is not (sufficiently) covered by public regulation. These private actors include representatives of employers and employees, but may also include private insurers. In some jurisdictions liability insurers provide supplementary cover for OHS risks and policy-makers often expect that the monitoring by liability insurers will increase safety at work. The main research question addressed in this paper is whether insurers (and more particularly insurers of employers’ liability) are indeed able to contribute to safety at work. Taking a law and economics perspective, we expect that this depends crucially on the possibilities insurers have to control moral hazard and adverse selection. However, the extent to which liability insurers have a financial interest in combatting these phenomena plays an important role. That may crucially depend upon the generosity of the public compensation scheme. First, we recapitulate the economic theory of insurance to the extent that it relates to work-related risks. Second, we address the question whether in some jurisdictions insurers have actually made use of these instruments, based on a literature survey. Third, we examine information on insurance policies offered by insurers in The Netherlands and the United Kingdom, to analyse to what extent theory matches practice