Texas All Lines Adjuster Test 2026 – 400 Free Practice Questions to Pass the Exam

The primary effect of morale hazard in insurance is increased risk-taking behavior by insured individuals. Morale hazard arises when individuals feel a decreased sense of responsibility for their actions because they are insured. This can lead them to engage in riskier behaviors or neglect preventive measures, as they believe that if something unfortunate happens, their insurance will cover the losses.

For example, a person with comprehensive auto insurance may be less cautious about locking their car or securing valuable items inside because they feel protected against theft. This change in attitude toward risk can significantly affect the frequency and severity of claims, impacting the overall costs for insurance providers.

While other options touch on different aspects of risk in insurance, they do not directly relate to morale hazard. Deliberate fraudulent claims represent a different concept known as moral hazard, while improper disclosure during claims is more about ethics and compliance rather than a change in behavior due to insurance coverage. Similarly, defensive driving behavior indicates a proactive approach to avoiding risk, which contrasts with the essence of morale hazard.