Georgia Property & Casualty Practice Exam

Alcoholism and drug abuse are categorized as what type of hazard?

1. physical

2. moral

3. legal

4. morale

The correct answer is: moral

Alcoholism and drug abuse are categorized as moral hazards. This classification arises from the understanding that moral hazards involve individuals engaging in behaviors that increase the likelihood of insurance losses due to their choices and lifestyle. In this context, if someone struggles with addiction, their decision-making can negatively impact their health and safety, potentially leading to increased risks that insurance policies must cover. Moral hazards reflect the idea that the behavior of individuals, particularly those engaging in reckless or irresponsible actions, can influence the probability of a claim being made against an insurance policy. When it comes to addictions, the actions taken by an individual under the influence might result in higher chances of accidents, health issues, or non-compliance with safe practices, which consequently raises concerns for insurers assessing risk. The other categories, such as physical hazards, are related to tangible factors that can influence the probability of loss (like the condition of a building), legal hazards involve the legal environment that might affect an insurer's ability to limit coverage, and morale hazards pertain to the indifference or lack of care that an individual may demonstrate due to having insurance coverage. Thus, distinguishing the behaviors stemming from addictions as moral hazards illuminates the relationship between personal choices and the implications for risk management in insurance.