Glossary term

Moral Hazard

This term has 2 definitions.

1. Moral hazard refers to the risk that a person or organization may behave differently because they have insurance coverage. Knowing they are protected, they might take greater risks or be less careful, which can lead to higher chances of loss or damage for the insurer. This behavior increases the overall risk the insurer faces.

2. Moral hazard occurs when a person or organization takes greater risks because they do not bear the full consequences of their actions. This often happens in financial contexts, such as insurance or banking, where safety nets or guarantees reduce the incentive to act cautiously, potentially leading to reckless or irresponsible behavior.

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