Which is an example of a morale hazard?

Which is an example of a morale hazard?

• A. Not locking doors in belief that insurance will help if stolen
• B. Bad credit
• C. Oily rag near a heat source
• D. Slippery floor in a warehouse

Answer: (A)

Morale hazard occurs when a person becomes more careless or reckless about risk because they know losses will be covered by insurance. Not locking doors because they believe insurance will pay for a theft shows this mindset: the insured alters their behavior in a way that increases the chance of a loss because the payout is guaranteed. The other scenarios aren’t morale hazards. Bad credit reflects financial responsibility and underwriting risk, not the insured’s risky behavior after obtaining coverage. An oily rag near a heat source is a physical fire hazard, a condition that increases risk regardless of insurance. A slippery floor in a warehouse is another physical hazard related to conditions, not the insured’s insured behavior toward insurance.

Morale hazard occurs when a person becomes more careless or reckless about risk because they know losses will be covered by insurance. Not locking doors because they believe insurance will pay for a theft shows this mindset: the insured alters their behavior in a way that increases the chance of a loss because the payout is guaranteed.

The other scenarios aren’t morale hazards. Bad credit reflects financial responsibility and underwriting risk, not the insured’s risky behavior after obtaining coverage. An oily rag near a heat source is a physical fire hazard, a condition that increases risk regardless of insurance. A slippery floor in a warehouse is another physical hazard related to conditions, not the insured’s insured behavior toward insurance.