Updated: 09 June 2023

What Does Hazard Mean?

A hazard refers to a situation or condition that increases the likelihood of an insured loss occuring. It is best understood in the context of two related terms: risk, or the chance of a loss occuring, and peril, or the actual cause of the loss. For example, drunk driving would be a hazard that increases the chances or risk of a peril like an accident occuring.

Insuranceopedia Explains Hazard

A hazard may be separated into two types: physical and moral. A physical hazard refers to a physical condition or environment that may affect the chance or severity of a loss. For instance, smoking inside represents a physical hazard that renders fire or illness more likely. Insurance companies turn to risk improvement, policy terms, and certain premiums to manage it. The second kind, a moral hazard concerns ethical conduct. On the individual level, it may be a dishonest policyholder who tries to file fraudulent claims, or on a larger scale, the U.S. legal system may qualify as it motivates people to sue in hopes of a large payout. Insurance companies cannot manage this type of hazard.

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