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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Insurance

In insurance, the term 'moral hazard' refers to which of the following?

Moral hazard is a dishonest tendency or change in the insured's attitude, such as carelessness or fraud after buying cover, that raises the likelihood or size of a loss. Physical features of the property that increase risk are physical hazard, a separate concept.

  1. AThe physical condition of the property that makes a loss more likely
  2. BA dishonest tendency or change in attitude of the insured that increases the chance or size of a loss after cover is takenCorrect
  3. CThe chance that the insurer will be unable to pay claims
  4. DThe uncertainty about the exact date of death of the insured

Explanation

Moral hazard arises from the insured's character or behaviour, such as carelessness or fraud once cover exists. A physical condition that raises loss probability is physical hazard, so option 1 is wrong. Insurer insolvency and timing of death are different concepts.

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