What is the definition of a morale hazard?

A morale hazard refers to the tendency of an insured person to act with less care regarding their property or the risk they are insuring simply because they have insurance coverage. This sense of security can lead individuals to make less prudent decisions, assuming that any loss will be covered by their insurance policy.

For example, a person may leave their car unlocked or fail to maintain their home properly, believing that their insurance will cover any theft or damage. This behavior is different from intentional fraud, vandalism, or calculated risks, which involve varying levels of intentionality and risk assessment. Understanding morale hazards is crucial for insurance adjusters, as these behaviors can affect risk assessment and coverage decisions.