West Virginia Adjusters Practice Exam

Robby carpools to school with his friends, and he enjoys racing the other cars on the road whenever he can. His Dad lectures him about the dangers of speeding, but Robby thinks his Dad is overreacting. He's been driving for two whole years, so he knows what he's doing. And besides, they have good insurance, so it wouldn't be that big of a deal even if Robby did damage his car. In insurance terms, Robby's behavior is:

1. a physical hazard.

2. a morale hazard.

3. a moral hazard.

4. an insurance hazard.

The correct answer is: a physical hazard.

The correct answer is that Robby's behavior represents a morale hazard. A morale hazard refers to the carelessness that occurs when an individual feels protected from the consequences of their actions, often because they have insurance. In Robby's case, he believes that since they have good insurance, it wouldn't be a big deal if he gets into an accident, which may encourage him to take risks like speeding. This mindset of not taking the potential consequences seriously exemplifies the characteristics of a morale hazard. Physical hazards, in contrast, involve tangible conditions that increase the chances of loss, such as a car in disrepair or poor road conditions. Moral hazards arise from unethical behavior or intentions that can lead to loss, such as intentionally causing damage to collect insurance. An "insurance hazard" is not a standard term in discussions of insurance and risk. Therefore, Robby's behavior clearly aligns with the definition of a morale hazard due to his cavalier attitude toward the repercussions he could face because of his risky driving.