Insurance Underwriting – Non-UK (WUE) Practice Exam

Moral hazard shows up when having insurance changes the insured’s behavior, making losses more likely or more costly because the insured may become less careful or rely on coverage to absorb the consequences. Poor factory management signals lax governance and weak safety culture; with insurance in place, the incentive to control losses can fall further, leading to more careless operations, delayed maintenance, and inadequate loss-prevention efforts. That mix increases both the likelihood and potential severity of claims, which is the essence of moral hazard. The other options point to strong risk-management practices. Excellent safety training, regular maintenance schedules, and robust risk controls reflect a proactive approach to preventing losses, which reduces the insured’s tendency toward risk-shifting and makes moral hazard less likely.