Hazard
Definition
A condition that increases the probability or severity of a loss. Hazards can be physical (poor maintenance), moral (fraud), or morale (carelessness).
Example
A building with outdated electrical wiring represents a physical hazard that increases the likelihood of an electrical fire. An insured who has filed multiple suspicious claims represents a moral hazard.
In Practice
Underwriters identify and assess hazards when evaluating risks. Physical hazards are observable conditions that increase loss probability. Moral hazards involve intentional acts to cause losses. Morale hazards involve carelessness or indifference to loss prevention. Hazards affect underwriting decisions and premium pricing.