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Question

Difficulty: MediumPerils and Hazards

An underwriting audit of a regional grocery store chain reveals several distinct risk elements affecting the premises. According to fundamental risk management principles, which of the following findings correctly illustrate a morale hazard? (Select all that apply)

  1. The store manager neglects to clear ice from the walkways, assuming the company's liability policy will handle any resulting injuries.Answer
  2. B
    A customer intentionally fakes a slip-and-fall injury in the produce aisle in order to file a fraudulent liability claim.
  3. Employees consistently leave the loading dock security gate open overnight due to carelessness, knowing the store is fully insured against theft.Answer
  4. D
    A sudden lightning strike causes a massive power surge that damages the store's inventory control computers.

Answer

The scenarios describing the manager neglecting icy walkways and employees leaving the security gate open due to carelessness.
A morale hazard arises from an attitude of carelessness or indifference to loss, often stemming from the knowledge that insurance is in place. Both neglecting to clear icy walkways and leaving security gates open out of apathy perfectly illustrate this concept.

Step-by-Step Solution

1
Define a morale hazard in the context of insurance principles.
A morale hazard is a condition of carelessness or indifference that increases the frequency or severity of loss, often because the entity knows they are insured.
Establishing the definition is required to differentiate it from other risk elements.
2
Evaluate the manager neglecting to clear ice.
This is an act of carelessness driven by reliance on insurance, fitting the definition of a morale hazard.
The manager is not intentionally causing a loss, but is indifferent to the risk.
3
Evaluate the customer faking an injury.
This is an intentional act of fraud, which classifies as a moral hazard, not a morale hazard.
Moral hazards involve dishonesty and deliberate acts.
4
Evaluate the employees leaving the security gate open.
This is another example of carelessness and a lax attitude due to insurance coverage, fitting the definition of a morale hazard.
Indifference to security increases the risk of theft.
5
Evaluate the lightning strike.
Lightning is the active cause of the loss, meaning it is a peril, not a hazard.
Hazards increase the chance of loss; perils are the actual causes of loss.

Key Concept

Morale Hazard
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Topics

Perils and Hazards

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