Suppose a company purchases employers liability insurance to insure against accidents in the workplace. The probability of an accident occurring is 0.02. The insurance company has recommended that the company put on a workplace safety program, which will cost the company $800 to administer. If the program is implemented correctly, the risk of accidents will reduce by 20 times.

The insurance company cannot costlessly observe whether the safety program has been appropriately implemented. In the event an accident occurs, the value of the loss would be $600,000.

In this case, what is the source of the moral hazard?