Which type of hazard involves risks that are increased due to comfort with insurance coverage?

Moral hazard refers to a situation where an individual or entity may take more risks because they have insurance coverage. This phenomenon occurs because the presence of insurance may reduce the incentive for the insured party to act prudently since they believe they will be compensated for their losses through their policy. For example, if someone has insurance for their car, they might drive less carefully, knowing that any potential damages would be covered by their insurance provider.

Understanding moral hazard is crucial for insurance adjusters because it influences how claims are assessed and how risk is managed. The behavior of the insured can significantly impact loss outcomes and the overall integrity of the insurance system. Recognizing and addressing moral hazard helps insurers develop strategies to mitigate unwarranted risk-taking behavior.

The other types of hazards include physical hazards, which relate to tangible conditions that increase the likelihood of a loss; legal hazards, concerning the legal environment that may impose higher risks; and financial hazards, which refer to risks arising from economic factors. These do not involve the behavioral changes linked to having insurance coverage that define moral hazard.