What increases the likelihood of a loss in insurance?

In the context of insurance, a hazard specifically refers to a condition or situation that increases the probability of a loss occurring. Hazards can be physical, moral, or legal in nature. For instance, a physical hazard could involve an unsafe condition, such as a faulty electrical system in a building, which raises the likelihood of fire damage. Moral hazards involve behaviors or actions that might lead to an increased risk of loss, such as someone being less careful with their property because they have insurance coverage.

Understanding hazards is crucial for insurance underwriting, as they help insurers evaluate and manage risks associated with different applicants or policies. They are distinct from perils, which are the actual events that cause losses, such as fire, theft, or natural disasters. While risks encompass the overall chance of loss and insurable interest relates to having a legitimate stake in the subject of insurance, hazards specifically increase the likelihood of a loss occurring, making them a key focus in risk assessment and management.