Florida Health Insurance Definitions

Florida Health Insurance Terms:
"Moral Hazard"

Explain: "Moral Hazard":

The short answer is a condition of morals or habits that could affect and individual's insurability.

More Examples of Moral Hazard:

In economic theory, the term moral hazard refers to the possibility that the redistribution of risk (such as insurance which transfers risk from the insured to the insurer) changes people's behaviour.

The term, which had been used in the insurance industry for many years,[1] was subjected to serious theoretical analysis within economics by Kenneth Arrow in several works from 1963 onwards.[2] Economists generally follow Arrow's use of the term. In a 1996 article Tom Baker explored the history, meanings and controversies concerning moral hazard.[3]

However, in the insurance industry itself, a distinction is commonly made nowadays between moral hazard and morale hazard. Under this distinction, the term "moral hazard" is only used in the case of immoral or illegal conduct on the part of the insured party, while changes in behaviour and attitude are called "morale hazard".

The modern insurance industry usage is therefore different from the usage in economic theory, where the notion of moral hazard does not necessarily imply any immoral or illegal conduct.

Further details - Moral Hazard: Search The New Yorker


Back to Resources |  Florida Health Insurance Homepage