Okuzeka
Insurance vocabulary · Underwriting & Risk

Moral hazard

Meaning in insurance, with examples

nounAdvanced term

In insurance, moral hazard means: The risk that people become less careful, or act dishonestly, because they know they are insured.

In Turkish: ahlaki risk, ahlaki tehlike

How it is used

A concept from economics used by underwriters and product designers. Deductibles and co-payments are partly designed to reduce moral hazard, because the customer still pays part of each loss.

Example sentences

  1. A small deductible helps reduce moral hazard, as drivers still pay something for each claim.

  2. Covering 100 percent of every cost creates moral hazard.

Common collocations

  • reduce moral hazard
  • create moral hazard
  • moral hazard problem
  • risk of moral hazard
  • adverse selectionThe tendency for people with higher risk to be more likely to buy insurance, which causes losses if the insurer cannot tell the difference.
  • deductibleThe part of each loss that the customer pays before the insurance company starts paying. A higher one usually means a lower premium.
  • co-paymentThe part of a medical bill that the insured person pays each time they use a health service, either a fixed amount or a percentage.
  • insurance fraudDeliberately lying to an insurance company or faking a loss in order to receive money that is not owed.

More terms: Underwriting & Risk

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This page explains English vocabulary for learners. It is not financial advice.