Which statement best describes morale hazard?

Which statement best describes morale hazard?

• A. Indifference to loss
• B. A dangerous condition such as a broken stair
• C. Physical hazard such as ice on a sidewalk
• D. Poor maintenance of property

Answer: (A)

Morale hazard is a careless attitude or indifference toward loss that makes losses more likely or worse because the insured feels protected by insurance. The statement describing indifference to loss matches this idea: the insured’s mindset increases risk, not just a dangerous condition or physical risk. A dangerous condition like a broken stair or ice on a sidewalk is a physical hazard—an unsafe condition in the environment. Poor maintenance of property is also a physical risk factor or condition, not about the insured’s attitude. Morale hazards stem from how people behave or think after obtaining insurance, such as neglecting safety precautions or not taking reasonable care because they assume losses are covered.

Morale hazard is a careless attitude or indifference toward loss that makes losses more likely or worse because the insured feels protected by insurance. The statement describing indifference to loss matches this idea: the insured’s mindset increases risk, not just a dangerous condition or physical risk. A dangerous condition like a broken stair or ice on a sidewalk is a physical hazard—an unsafe condition in the environment. Poor maintenance of property is also a physical risk factor or condition, not about the insured’s attitude. Morale hazards stem from how people behave or think after obtaining insurance, such as neglecting safety precautions or not taking reasonable care because they assume losses are covered.