What do we call behaviors that increase risks due to the expectation of insurance coverage?

• A. Precautionary Behavior
• B. Risky Behavior
• C. Moral Hazard
• D. Indemnity Behavior

Answer: (C)

The term that describes behaviors leading to increased risks because individuals believe they are protected by insurance coverage is known as moral hazard. This phenomenon occurs when individuals engage in riskier activities or fail to take necessary precautions because they feel shielded from the consequences due to their insurance policies. The belief that an insurer will cover losses can lead some insured parties to act less cautiously, believing that any potential financial repercussions are mitigated.

In the context of insurance, moral hazard is essential for insurers to comprehend as it directly impacts their risk assessment and premium pricing. Understanding moral hazard helps insurance companies implement policies and incentives that encourage responsible behavior among insured individuals to minimize potential claims and losses.