Bharti AXA INSURANCE GLOSSARY Moral Hazard In insurance, moral hazard refers to the increase in risk exposure by an asset owner based on availability of insurance. This causes inefficiency in how the asset is utilized as the owner is less inclined to protect it. One of the ways to reduce moral hazard is through compulsory deductibles that make the asset owner responsible to pay for a part of the damages incurred even when insurance coverage is in effect. In general, a moral hazard occurs when a party in a contract or transaction has an opportunity to take on additional risk that negatively affect the other party. This happens when the goals of both the parties may not be aligned well. For example, a lender would want to ensure that the interest charged on the loan are commiserate to the risk of default. But a loan broker would want to increase the commissions they earn by selling as many loans as they can. The misaligned incentives give rise to a moral hazard. Another moral hazard arises if the market value of the mortgaged property falls below the loan value. Now, should the borrower attempt to repay the loan or just walk away and let the bank take over the mortgaged property. Request Call Back Category * - Select -CarTwo WheelerHealthTravelPersonal Accident Buy Renew Claim submit Related Posts Disclaimer : The information published on this website is for the public's reference only. Content of this information is to provide an overview of your Travel needs and should not be relied upon for personal, medical, legal or financial decisions and you should consult an appropriate professional for specific advice. Bharti AXA General Insurance Company Limited makes no representations about the suitability, reliability, timeliness, and accuracy of the information, travel, services, or any other items mentioned on this subject for any purpose whatsoever.