Morale hazard

From Wikipedia, the free encyclopedia

Morale hazard is an increase in the hazards presented by a risk arising from the insured's indifference to loss because of the existence of insurance. This differs from a moral hazard because in this case, there is no conscious or malicious intent to cause a loss..^[1]

Contents 1 Examples of morale hazards 1.1 Insurance 2 See also 3 References

[edit] Examples of morale hazards

[edit] Insurance

• Insurance can be seen as discouraging preventive measures, such as proper fire prevention. For example, the expectation of federal government disaster aid seems to encourage the residents of Malibu, California to let bushes and trees grow near their houses, as part of their landscaping. This increased vegetation raises the risk of fire damage to their houses. Equally, the prospect of federal aid may depress insurance premiums, thus providing people with an incentive to settle in hazardous areas. The Cato Institute has argued that the federal government should not subsidise the reconstruction of New Orleans, for precisely this reason.

• Automobile insurance reduces the costs to insured people who have accidents, making people less cautious when driving (compared to how they would drive if they paid 100 percent of the damages they cause in an accident).

Insurance companies often try to stem the problem of morale hazard by risk reduction measures, such as insisting on the ownership of fire extinguishers (in the case of fire insurance), or offering price reductions (for example, if a burglar alarm is installed in a home).

[edit] See also

• Moral hazard

[edit] References

This article needs additional citations for verification. Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (November 2007)