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moral hazard

Moral hazard is an increase in the probable frequency or severity of loss due to an insured peril that arises from the character or circumstances of the insured.

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moral hazard

Moral hazard is an increase in the probable frequency or severity of loss due to an insured peril that arises from the character or circumstances of the insured.

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Moral hazard is measured by the character of the insured and the circumstances surrounding the subject of the insurance, especially the extent of potential loss or gain to the insured in case of loss. For example, insurance on a thriving business is not subject to a moral hazard to as great an extent as insurance on an unprofitable business. On the other hand, an insured with high moral standards may pose less of a moral hazard even with an unprofitable business than an insured with low moral standards. Moral hazards are considered when underwriting insurance, particularly fire insurance, and are addressed by certain policy exclusions. For example, underwriters are hesitant to insure vacant and unoccupied buildings because of the possibility that an insured will be tempted to intentionally start a fire to obtain an insurance recovery.

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