Abstract A "moral hazard" is a market failure most commonly associated with insurance, but also associated by extension with a wide variety of public policy scenarios, from environmental disaster relief, to corporate bailouts, to natural resource policy, to health insurance. Specifically, the term "moral hazard" describes the danger that, in the face of insurance, an agent will increase her exposure to risk. If not immediately clear, such terminology invokes a moral notion, suggesting that changing one's exposure to risk after becoming insured is morally problematic. This paper challenges that position. It argues that there is nothing inherently moral about the moral hazard. It does so by arguing against three proposed claims regarding the wrongness of the moral hazard: first, the view that conceives of it as deception; then, the view that conceives of it as cheating; and finally, the view that conceives of it as stealing. Show
Journal Information Public Affairs Quarterly (PAQ) is devoted to current issues in social and political philosophy. It specializes in contributions that examine matters on the current agenda of public policy in light of philosophical reflections and assessments. The journal offers tightly focused philosophical case studies of particular issues in such areas as social and economic justice; public welfare; individual entitlements, rights, and duties; inheritance, taxation, and distributive justice in general; population policy, abortion, and euthanasia; environmental problems; science policy; the social and political status of women, senior citizens, minorities, and other social groups; arms control, war and deterrence; loyalty, duty, and patriotism; ethical issues in medicine, business, and the professions; criminality, criminal justice, and punishment; and similar topics. Publisher Information The University of Illinois Press is one of the leading publishers of humanities and social sciences journals in the country. Founded in 1918, the Press publishes more than 40 journals representing 18 societies, along with more than 100 new books annually. Our publication program covers a wide range of disciplines including psychology, philosophy, Black studies, women's studies, cultural studies, music, immigration, and more. Current issues are available through the Scholarly Publishing Collective. The Press is a founding member of the Association of University Presses. Rights & Usage This item is part of a JSTOR Collection. In conjunction with the two different types of risk (speculative and pure), there are two other concepts to become familiar with: (1) Perils and (2) hazards. A peril is the cause of a risk. A peril is the immediate specific event causing loss and giving rise to risk. When a building burns, fire is the peril. A hazard is the source of danger. The hazard is the underlying factor behind the peril that leads to the probability of a particular loss to the insurer. It is the active ingredient that could create a peril, which could then lead to a particular loss event. To determine the exposure to risk is to ask, "How vulnerable is the insured item to loss?" Study the three types of hazards: (1) Physical, (2) moral, and (3) morale. Distinguishing physical hazards from the other two (moral and morale) is relatively easy. However, making the distinction between moral and morale hazards may not be so easy. Physical HazardsPhysical hazards can be described as being of a physical nature - quite self-explanatory. For instance, if a person is being treated for cancer, the disease is the physical endangerment that will lead to loss. Moral HazardsMoral hazards are those tendencies individuals have that increase the chance of suffering a peril, such as how the habit of smoking can lead to emphysema, or how drug addiction can lead to physical impairment and death. Moral hazards are typically habits with little regard toward impending responsibilities for those lifestyles, such as a poor credit rating or dishonest business practices. Moral hazards are typically habits with little regard toward impending responsibilities (i.e., a lack of morals). For underwriting purposes (which we will get into extensively in Lesson 5, Life Insurance Underwriting and Policy Issuance), moral hazards are considered the effect of personal reputation, character, associates, personal living habits, financial responsibility and environment, as distinguished from physical health, upon an individual's general insurability. Moral hazards are habits or lifestyles. Morale HazardsMorale hazards differ from moral hazards in the way that hazards could develop into a loss situation. A morale hazard stems from an individual's state of mind such as road rage. It is usually a temporary lapse in judgment. The key to distinguishing between moral hazards and morale hazards is that morale hazards stem from an attitude or state of mind at a given moment causing "indifference" to loss. Morale hazards can arise from indifference to loss because of the existence of insurance.
Helpful Hint Consider the examples the Florida study manual gives on page 9, Perils and Hazards: "For example, when a building burns, fire is the peril. When a person dies, death is the peril. When an individual is injured in an accident, the accident is the peril. When a person becomes ill from a disease, the disease is the peril." Regarding the first example (fire): "...when a building burns, fire is the peril." In this instance, perhaps faulty wiring could've been the hazard that gave rise to the risk of the fire (peril). Regarding the second example (death): "...when a person dies, death is the peril." In this instance, falling from a ladder could've been the hazard that contributed to the death (peril). Regarding the third example (accident): "...when an individual is injured in an accident, the accident is the peril." In this instance, road rage could've been the hazard that contributed to the accident (peril). Regarding the fourth example (disease): "...when a person becomes ill from a disease, the disease is the peril." In this instance, smoking could've been the hazard that contributed to the disease (peril). What is a condition or situation that increases the probability of loss?A hazard is a condition that increases the probability of a loss occurring.
Which of the following is any situation that represents the possibility of a loss?A condition or situation that presents a possibility of loss is an exposure. Insurance policies are designed to cover loss, either a direct loss or an indirect loss.
Which of the following is a situation where there is a possibility of either a loss or a gain quizlet?a situation in which there is a possibility of a loss or a gain is a speculative risk. Which of the following is NOT considered to be a definition of the term "loss"? The term "loss" can be defined as all of these EXCEPT "probability that can event will occur."
Which of the following describes an insurable risk?An insurable risk must have the prospect of accidental loss, meaning that the loss must be the result of an unintended action and must be unexpected in its exact timing and impact.
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Which of the following describes the increase in the probability of a loss due to an insureds dishonest tendencies?
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