What type of hazard results from a policyholder’s deliberate decisions?

A moral hazard arises from a policyholder's deliberate decisions, specifically when individuals engage in risky behavior or make choices that increase the likelihood of a loss because they are insured. This type of hazard reflects the idea that having insurance may lead an individual to act less cautiously than they normally would, knowing they have coverage to protect them from losses.

For example, if a person knows that their car insurance will cover any accidents, they might drive recklessly, believing that they are shielded from the financial repercussions of a crash. This behavior is a result of the policyholder's conscious choice, thereby categorizing it as a moral hazard.

Understanding this concept is important for insurance professionals, as it helps them assess risks associated with insured individuals and develop measures to mitigate these risks, such as implementing risk management practices or adjusting premiums based on the behavior of policyholders.