UNDERWRITING HAZARDS
Information Needed by Everyone Involved with Insurance
When dealing with issues related to an insurance policy every insurance professional must understand underwriting, how insurance is acquired, and the hazards that impact the decision making process known as Underwriting.
The Morale Hazard
The “morale hazard” is the increase in uncertainty brought about by the indifference of a policyholder. The morale hazard describes a subjective hazard that tends to increase the probable frequency or severity of loss due to an insured peril. Morale hazard, as contrasted with moral hazard, does not imply a propensity to cause a loss but implies a certain indifference to loss simply because of the existence of insurance.[1]
Because of the indifference the policyholder may neglect ordinary precautions to protect against loss. The result is an increase in the probability of loss or an increase in the severity of loss.
In many cases the difference between “moral hazard” and “morale hazard” may be only one of degree. If the property owner takes steps to destroy his or her own property, it is a “moral hazard.” If the property owner fails to take steps that would help to protect against a loss, that is a “morale hazard.”
The “morale hazard” is usually not considered by underwriters to be as predictive of a future loss as is the “moral hazard.”
To underwrite against morale hazards, information must be gathered in much the same manner as described for the moral hazard above.[2]