Question

Which of the following can be defined as a cause of loss?

Option 1: Physical hazard
Option 2: Moral hazard
Option 3: Legal hazard
Option 4: Pure risk

Answer 1

Moral hazard can cause more costly insurance premiums than expected.

Step-by-step explanation:

Moral hazard can be defined as a cause of loss. It refers to the case when people engage in riskier behavior with insurance than they would if they did not have insurance. For example, having health insurance might lead someone to take fewer precautions against catching an illness, or having car insurance might make someone less concerned about driving recklessly or parking in risky areas. This increased risk-taking behavior can lead to more frequent claims and higher insurance costs, resulting in more costly insurance premiums than expected.