Definition - What does Morale Hazard mean?
A morale hazard is the unconscious change of behavior that might lead to the insurer paying for a risk. This behavioral change can be brought about by the purchase of insurance for a belonging.
Insuranceopedia explains Morale Hazard
The important aspect of the definition to consider here is "unconscious." Morale hazard only occurs when the change of behavior is unintentional.
A person might, for instance, drive more recklessly once their car is insured. Or they might be less careful when handling their laptop if damage or loss is covered by their personal property insurance.
Since these potential behavioral issues are hard to ascertain, underwriters face a difficulty in assessing these types of hazard.