Final answer:
A peril in insurance is a cause of a loss, such as a fire or theft. Moral hazard refers to riskier behavior by those insured, due to diminished incentives to prevent insured losses. Managing these risks is critical for a balanced insurance system.
Step-by-step explanation:
Understanding 'Peril' in Insurance
A peril in the context of insurance is best defined as c. A cause of a loss. It refers to the specific risks or causes of loss covered by an insurance policy, such as fire, theft, or natural disasters. Dealing with economic risks, especially ones over which individuals have little control, is essential in providing security for individuals and families.
The Impact of Moral Hazard in Insurance
Moral hazard occurs when the presence of insurance results in riskier behavior by the insured. For example, a person with health insurance may take fewer health precautions because they're less concerned about the cost of a doctor's visit. Similarly, businesses may invest less in security or fire prevention if they have insurance covering these risks. This phenomenon affects insurance markets because insured parties have less incentive to prevent losses that are covered by their policies.
Addressing moral hazard and imperfect information is central to maintaining a balanced insurance system. An actuarially fair insurance policy aims to equalize the premiums paid and the average benefits received. However, insured individuals having less incentive to avoid risks can introduce complexities into the economics of insurance.