I suppose once the stop loss level is hit, then any more claims come in afterwards, the direct insurer probably can have a more relaxed approach to claims control. (From their prospective, any more claims are going to be paid by the reinsurer anyway, why bothered?) All the other types of reinsurance, the direct insurer will still lose some money so the moral hazard would not be as big as a stop loss. (I think this is one of the reasons, a few restrictions are normally in place for stop loss, e.g. participating clause/upper limit, so that the direct insurer would still have some active interest to the losses they incur even after having reached the stop loss level.) This is my wild guess - probably talking rubbish here...... XDDDD
I agree with psychopath. And unlike risk xl or cat xl, the moral hazard could impact underwriting as well as claims handling - once the stop loss kicks in, the insurer could decide to write additional business, perhaps not as well priced as usual, in the knowledge that they can keep the premium, but claims will be paid through the stop loss.
