What does "moral hazard" in insurance refer to?

Moral hazard in insurance refers to the idea that an insured person's behavior can change once they have insurance coverage, which can affect their risk profile. Specifically, it suggests that individuals may take greater risks or behave in a more reckless manner because they know they have insurance protection. For example, someone with comprehensive car insurance might drive more carelessly than someone who is not fully covered, feeling less accountable for potential damages.

This concept highlights the relationship between an insurer and the insured, where the latter's actions can directly influence the likelihood of a loss occurring, thereby impacting the insurer's risk.

The other options address different aspects of risk but do not accurately capture the definition of moral hazard. While fraudulent claims fall under a broader category of insurance risks, it doesn't pertain to the behavior of the insured regarding risk-taking. Similarly, risks associated with high-value assets and natural disasters relate to physical risks rather than the behavioral influences that moral hazard encompasses.