Moral Hazard

What It Is:
Risks stemming from human behavior, attitudes, and values, especially related to honesty and care.

Further Explanation:
Moral hazards encompass the intangible traits and actions of people, reflecting their character and decision-making. This hazard type is more unpredictable as it’s based on personal choices and integrity.

• Carelessness: A motorist who often neglects traffic rules or drives recklessly creates a higher risk of accidents. Their attitude and approach to driving can increase the severity and frequency of potential claims.
• Dishonesty: An individual with a history of falsifying claims or exaggerating damages poses a higher moral hazard. Such behavior can result in higher costs for insurance companies due to fraudulent activities.
• Social attitudes: If societal norms become lenient towards insurance fraud or if it’s viewed as a minor offense, there’s an elevated risk of deceitful claims. When communities see insurance dishonesty as acceptable, the collective moral hazard escalates.