Alberta General Insurance Level 1 Practice Exam

Question: 1 / 400

What does "moral hazard" indicate in the context of insurance?

Lower premiums for high-risk individuals

Increased likelihood of loss due to insured's behavior

In the context of insurance, "moral hazard" refers to the increased likelihood of loss that arises when an insured individual engages in riskier behavior because they have insurance coverage. When a person knows they are protected against certain risks through insurance, they may not take the same level of precautions to prevent loss or damage. This behavior can lead to a greater chance that a loss will occur, making the insurer more vulnerable to claims.

Understanding moral hazard is crucial in the insurance industry as it informs underwriting practices and the design of policies. For example, insurers may implement measures like deductibles or coverage limits to mitigate the risk associated with moral hazard, thereby encouraging policyholders to act more responsibly and take preventive measures. The concept highlights the importance of aligning the insured party's behavior with risk management efforts to ensure a stable insurance market.

Get further explanation with Examzify DeepDiveBeta

Guaranteed insurance payouts regardless of circumstances

Insured being encouraged to minimize risks

Next Question

Report this question

Download Alberta General Insurance Level 1 Practice Exam PDF Study Guide
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy