Which are the three basic types of hazards?

• A. Physical, Moral, Morale
• B. Physical, Economic, Moral
• C. Environmental, Moral, Morale
• D. Physical, Moral, Social

Answer: (A)

In risk assessment for insurance, hazards are conditions that increase the likelihood or severity of a loss. The three classic types are:

• Physical hazard: a Physical condition or situation that makes a loss more likely or more severe, such as icy steps, faulty wiring, or a slippery floor. These are tangible factors that exist in the environment or property.

• Moral hazard: a tendency toward dishonesty or fraudulent behavior that increases the chance of a claim, such as staging a loss or exaggerating damages. This stems from the insured’s character or incentives.

• Morale hazard: a careless or indifferent attitude toward risk because insurance exists, such as leaving doors unlocked or failing to maintain safety practices.

These three categories are the standard trio used to describe hazards in underwriting and risk management, which is why physical, moral, and morale appear as the correct combination. Other terms like environmental or economic hazards are not part of this classic triad in this context.