What aspect of insurance can lead to an increase in moral hazard?

The aspect of insurance that can lead to an increase in moral hazard is the sense of security provided by having insurance coverage. When individuals or businesses are insured, they may feel more secure and may not take the same precautions they would if they were fully exposed to risk. This feeling of safety can lead them to act with less diligence or care regarding their property or health, knowing that, should a loss occur, the insurance will cover it.

Moral hazard arises when the insured party alters their behavior because they are shielded from the consequences of that behavior. For instance, someone with comprehensive insurance coverage might be less vigilant in protecting their possessions, such as leaving a car unlocked or failing to heed safety warnings, because they know their insurance will compensate them for any loss.

While the other options, such as higher premiums, increased coverage limits, or provisions for additional claims, can impact the nature of an insurance policy or its costs, they do not directly create a shift in behavior based on a false sense of security in the same way that the insured feeling secure influences their actions.