What is MORAL HAZARD?

In common usage, moral hazard infers a conscious malicious, even illegal, motivation, versus an unconscious behavior change. Circumstance that increases the likelihood of a loss, or abnormal loss. Typically due to a change in an insurance policy applicant’s behavior after policy issuance. Incentives may lead the insured to act in ways that increase insurer risks and costs. Overinsurance or substitution of insured valuable assets with junk are examples. Contrast to morale hazard.

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