By far the most common example of poor moral hazard is that of carelessness: the insured who fails to take reasonable care to prevent loss or damage to his property, or for the safety and well-being of his employees and others. This often arises through other pressures of business and domestic life appearing to be more important, or the insured may be totally ignorant that his or her conduct is increasing the likelihood of loss. The only really satisfactory way in which to improve moral hazard is to educate the insured in the potential dangers and how to reduce them.

As we have seen many article of moral hazard but It is sometimes difficult to draw a dividing line between physical and moral hazard. A sports car was quoted above as an example of a poor physical risk, but a sports car cannot by itself cause more accidents than a family saloon. It is the manner in which it is driven that constitutes the hazard; most purchasers of sports cars wish to take full advantage of their potential speed, sometimes with disastrous results. Very often the existence of a present physical hazard will be the result of a moral hazard incurred at an earlier stage. For example, the physical hazard which unsafe working conditions at a factory represent may be no more than the result of a moral hazard incurred at an earlier stage where, for example, a factory had been insufficiently well planned at the outset or improperly supervised after its completion.

A final example of poor moral hazard in the insured is the arrogant or "awkward" individual. This is often evident at the proposal stage and it is likely that he will be even harder to deal with at the time of a claim. In practice it is unlikely that the insurer or broker can improve the risk and to decline the proposer may be the best course of action for all concerned.

Employees                                                

If management/employee relationships are poor or if it is the custom in the trade that wage levels are very low, there is likely to be little incentive on the part of the employee to be careful in his or her work. In extreme cases there may be sabotage, vandalism, or wilful fire-raising.

Society                                                        

The underwriter must always be conscious of the attitudes of society at large as these can influence the incidence of claims. In recent years there has been an increasing incidence of vandalism. In certain parts of the country fires caused deliberately have been the largest single cost of any identified source of fire damage.

Insured are also becoming more claims-conscious, and the result of these trends is, in the case of house insurance at least, that rates have been increased by up to 100 per cent in the last few years in order to, keep house insurance accounts in profit.

The surveyor
                                              
proposal form or broker's slip can only give a certain amount of information, and for all but the simplest and smallest of cases it is the practice to have a survey of the premises carried out to ascertain in full ,detail the nature of the property or liability risk being proposed.
The surveyor will prepare a report and frequently a plan of the premises detailing the various physical and moral features of the risk, Commensurate with the type of insurance being proposed. He will make recommendations to improve the risk. Acceptance of the proposal may be conditional on the insured carrying out these improvements. The report on property risks will include an estimate of the maximum probable loss (MPL) and may make recommendations regarding reinsurance. There will be detailed build-up of the premium rate which is applicable to the risk.

In the case of life assurance proposals over a certain value or where the proposer has indicated some adverse medical feature in the proposal form, it will be usual to have an examination carried out by the proposer's own medical practitioner, the company doctor, or a specialist depending on the factors of the case. Normally the expense of these examinations is borne by the company.We can see more articles directory of life assurance.

Rating                                                         

The rate to be charged will take into account the level of cost, which experience has shown is necessary for the normal case in this type of trade, to cover average claims costs, reserves, expenses and profit. This basic or "normal" rate will be adjusted upwards for poor physical features and to a lesser extent for general moral hazard. As indicated earlier, the insured's individual moral hazard is not readily compensated by higher rates, education being the only real answer.
On the other hand, good physical features will warrant a reduction from the normal level of rating.

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