Question

What is "Moral Hazard" in insurance?

a.

The risk associated with natural disasters

b.

The potential for fraud within insurance companies

c.

The risk factors that affect the decision of the insured person to accept a policy

d.

A situation where one party engages in risky behavior knowing they are protected against the risk, leading to costs for the other party

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (d).A situation where one party engages in risky behavior knowing they are protected against the risk, leading to costs for the other party Explanation:Moral hazard in insurance refers to a situation where one party engages in risky behavior knowing that they are protected against the risk, while the cost of that risk is borne by the other party, often the insurer.

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