What does the term hazard refer to in the context of insurance?

In insurance terminology, the term "hazard" refers to a condition that increases the probability of a loss occurring. Hazards can take various forms, such as physical conditions (like an unmaintained property), moral hazards (such as dishonesty), or legal hazards (factors related to legal liability). By identifying and evaluating these hazards, insurers can better assess risk and determine appropriate premiums or coverage options.

The correct answer highlights the role of hazards in the broader context of risk management and insurance underwriting. Recognizing how a hazard can elevate the risk level is essential for actuaries and adjusters who need to price policies accurately and determine coverage limits. Understanding hazards helps in establishing safer practices and makes it possible to take steps to mitigate potential losses effectively.