Morale Hazard

Carelessness or indifference without intent to profit from insurance — A morale hazard is unintentional carelessness or indifference that develops because insurance exists — the insured takes fewer precautions, such as ignoring maintenance or skipping preventive care, without any intent to defraud. A moral hazard, by contrast, is deliberate dishonesty, such as exaggerating a claim or staging a loss, where the insured intends to profit from the policy. Distinguishing the two matters because each is managed differently: morale hazards are addressed through loss-control incentives, while moral hazards are addressed through fraud investigation and exclusion.

National insurance concept

A condition that increases the probability that a loss will occur — A hazard is a condition, circumstance, or factor that increases the probability or severity of a loss. Hazards are classified as physical, moral, or morale: a physical hazard is a tangible condition such as defective wiring, a moral hazard is dishonesty such as deliberately causing a loss, and a morale hazard is carelessness that arises because insurance exists. Underwriters evaluate hazards carefully because they directly affect the likelihood of a claim and therefore the premium that must be charged for the risk being considered.

National insurance concept