Question

Essay: 1. Difference between Moral Hazard and Morale Hazard, Why Moral Hazard is important concept to insurance company? 2. The high cost of liability insurance has made some people believe that this kind of insurance should be eliminated because the cost is too high for the society. Do you agree with it? ch. 2 & 19

Answer 1

Answer:

1. The difference between :          Moral Hazard              

Intentions     - An individual is aware of what he is doing and intentionally goes for the risk because he knows he is covered and will gain as the payment or any related cost to sustaining an injury or a loss will not be paid by him but will be paid for by the insurance as it covered. Actions are intentional and potential risks increases as the behavior becomes irresponsible and careless.

                                                  Morale Hazard

Intentions     - An individual's behavior unintentionally changes and so does the attitude toward the insured item changes. Here an individual losses responsibility unintentionally and unconsciously acts reckless as they know know it is insured.

main difference are intentions

Moral Hazard is an important concept to insurance companies because Insurance companies need to know the intentions of the person, insurance is not for gain but for cover against the possibility of a risk and the person insured should not seek for the risk and actually drive the risk or be the cause of the risk occurring.

2. No, I do not think it should be eliminate. it is obvious that moral hazard does in a way seem like it is encouraging bad behavior but risks must be insured. The insurance companies should enforce some claim charges for this kind of insurance.

Explanation: