What describes a Morale Hazard in insurance?

A Morale Hazard refers to a situation where an insured individual shows an increased level of risk-taking behavior because they have insurance coverage. This phenomenon occurs when individuals may become less vigilant or take greater risks, knowing that they are protected by an insurance policy. For example, a person might drive more recklessly or engage in risky activities because they believe that any resulting damage or loss will be covered by their insurance.

This concept highlights how insurance can inadvertently influence behavior, leading to an increased likelihood of loss. Understanding morale hazards is crucial for underwriters and adjusters as they assess the risk posed by policyholders and implement measures to mitigate those risks.

The other options either refer to different types of risks or behaviors associated with insurance that do not align with the definition of morale hazards specifically.