What does moral hazard refer to?

Moral hazard refers to a situation in which one party is incentivized to take risks because they do not bear the full consequences of that risk, often because another party, such as an insurance company, absorbs some or all of the potential losses. In the context of the choices provided, the correct answer highlights dishonesty that intentionally causes a loss. This can manifest in behaviors like fraud or manipulation of insurance claims, where an individual may act in a deceitful manner knowing that the repercussions will not fall entirely upon them, but rather on their insurer.

While the other options present different aspects of risk or behavior related to insurance, they do not align with the concept of moral hazard. For instance, financial loss due to accidents focuses more on the outcome of risks rather than the behavior underlying them. Negligence in maintaining insurance pertains to a failure of duty rather than the intentional dishonesty that defines moral hazard. Lastly, stating an increase in risks due to better safety measures misrepresents the idea since moral hazard typically arises from reduced personal accountability rather than improved safety.