The Final Instance - Unemployment Insurance Going Private? A Study of a Future Social Security Scenario in the UK and Germany

Abstract

This paper explores the scope for privatizing unemployment insurance in Britain and Germany. The research builds on two consecutive projects, undertaken in the two countries between 1996 and 2000. The studies investigated people's attitudes towards the welfare state and private insurance, and families' strategies to manage the financial risk of unemployment. About 6% of the working population of both Britain and Germany claimed to possess private unemployment insurance. A further 23% in Britain and 12% in Germany expressed an intention to acquire private unemployment insurance. Attitudes towards private unemployment insurance were influenced by perceptions of unemployment risk, household circumstances, private money management strategies, and perceptions of the welfare state and the efficiency and trustworthiness of its institutions. The risk of exclusion from insurance in the two countries, either voluntary or as a result of actuarial risk assessment, is investigated. There is at present little evidence of adverse selection, nor would an expansion of the private unemployment insurance market necessarily entail that risk. However, the study found some, albeit limited, evidence of moral hazard. Significant country-specific differences were apparent in all aspects of the study.