A commercial property owner submits a claim after a burglary. The investigation reveals that the burglar gained entry through a broken security gate that the owner had neglected to repair for over a year due to indifference. Additionally, the owner intentionally added several fictitious high-value items to the claim inventory to maximize the payout. Based on insurance risk principles, which of the following correctly classifies these elements?
- The burglary is the peril, the owner's indifference is a morale hazard, and the fictitious inventory is a moral hazard.Answer
- BThe broken gate is the peril, the burglary is a physical hazard, and the fictitious inventory is a morale hazard.
- CThe burglary is a moral hazard, the owner's indifference is a physical hazard, and the fictitious inventory is a speculative risk.
- DThe fictitious inventory is the peril, the broken gate is a moral hazard, and the owner's indifference is a physical hazard.
Answer
The correct classification identifies the burglary as the peril, the indifference toward repairs as a morale hazard, and the fraudulent inventory as a moral hazard.
The correct answer accurately distinguishes between the three core concepts. The burglary is the peril because it is the direct cause of the property loss. The owner's indifference represents a morale hazard, which is an attitude of carelessness that increases the chance of a loss. The intentional addition of fictitious items is a moral hazard, which specifically involves dishonesty or fraud.
Step-by-Step Solution
Key Concept
Distinguishing between Perils, Moral Hazards, and Morale Hazards