by Ed Sneneh, Illinois Insurance Quotes Agent
A hazard is defined as a scenario or condition which enhances or increases the probability of occurrence of loss, because of a particular type of peril. In the auto insurance business when a car driver doesn’t maintain her car in good condition and the brakes go out of commission, the brakes become classified as a hazard which increases the probability of a loss as a result of automobile crash.
Most insurance professional agree that there are three types of hazard that the average person need to be be familiar with. They are important to know because understanding them make the average consumers have better understanding of the mechanism of insurance. These hazard are physical, moral and morale hazards.
- Physical Hazards. This set of hazard refer to those factors that can be perceived with our five senses, or they can be seen, touched or smelled that can cause a loss.
Examples of Physical Hazard: bad brakes in vehicles, bad wipers (prevent clear vision), broken headlights, inoperable signal. In home insurance keeping gasoline tanks in the garage will increase the risk of fire. For businesses water spills will cause slippery floors, making it highly probable for customers to slip.
- Moral Hazards. These refer to the situations when someone with insurance may be totally dishonest or may exaggerate the claims, making a loss seem larger than it originally was. Some one who is a thief or an arsonist, for instance, would be classified as moral hazard if he tries to purchase some property insurance.
- Morale Hazards. These hazards refer to situations where having or owning an insurance policy make people careless, or indifferent to the loss. Certain people developed these hazard when the ability to buy insurance makes them indifferent to loss. For instance, when John purchases full coverage auto insurance policy for for his newer car and then leaves the car running with the key in the ignition, thus using no judgment as if someone may steal the vehicle etc., this reckless attitude is classified as Morale Hazard.
Insurance companies typically try to examine the situations by checking applicants and property insured. By checking the C.L.U.E. (Comprehensive Loss Underwriting Exchange), insurance companies can get the history of both the client and the property insured with regard to previous claims made, including nature of claims, amounts paid, names, dates of birth etc. of the parties involved.
Many companies are also using credit in auto home insurance. There seems to be an assumption among insurance companies that people with bad credit have higher tendencies to file claims. But even for companies that do not check the credit a significant difference in quality of insurance coverage may exist for the same priced policies.