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I don't understand your example because from your description I can't tell who set the place ablaze. If it's the owner, then it's insurance fraud, and it has n

I don't understand your example because from your description I can't tell who set the place ablaze. If it's the owner, then it's insurance fraud, and it has nothing to do with moral hazard. If it's not the owner but say a random crackhead, then I also fail to see how it qualifies as moral hazard, and if the insurance doesn't not cover them nobody will (because the arsonist is insolvent and will never be able to pay $3M) and the business owner is screwed, which is a terrible outcome (and is exactly what happened here). In any case the answer to 1) clearly is “the insurance company” exactly as if arson is excluded. > Without insurance, the owner is the one who bears the costs directly no matter what, Which is exactly what he's trying to avoid when paying for an insurance in the first place. And like with health insurance, there's actually very little link between the fact that you're insured or not and the risk you're taking (Like nobody gets hurt because their injuries get reimbursed) because the harm goes far beyond the economic loss you're insuring yourself against.

lazide 2y ago
All I can say is you clearly don’t understand what moral hazard is, because my example is a textbook (literally) example of it. [https://www.merriam-webster.com/dictionary/moral%20hazard][https://2012books.lardbucket.org/books/enterprise-and-individual-risk-management/s05-05-perils-and-hazards.html] https://www.merriam-webster.com/dictionary/moral%20hazard][h... If the owner won’t lose out on the payout from insurance by committing arson, or could plausibly get away with it without getting caught, he is experiencing a moral hazard to commit arson. It’s only insurance fraud if he lies to get a payout from insurance. Which means the insurance policy would need to have an exclusion to not pay him out if he committed the arson, so he lied about it. If it did not have that exclusion, then he doesn’t need to lie about it, hence no fraud. Either way, that the insurance policy would pay him if he burnt his place down is literally the moral hazard. It’s called a moral hazard because it creates an incentive for him to commit an immoral act that he otherwise would not. It’s existence is a hazard to his morals. That they would exclude if he did it himself, and would investigate it, is what the company is doing to attempt to mitigate that moral hazard. But it always exists.
- deleted 2y ago
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- littlestymaar 2y ago
  > All I can say is you clearly don’t understand what moral hazard is, because my example is a textbook (literally) example of it. [https://www.merriam-webster.com/dictionary/moral%20hazard][h https://www.merriam-webster.com/dictionary/moral%20hazard][h... This random example is interestingly at odds with all the other definitions and example on that very web page! > If the owner won’t lose out on the payout from insurance by committing arson, or could plausibly get away with it without getting caught, he is experiencing a moral hazard to commit arson. This makes zero sense, because in that line of reasoning, the moral hazard is always there no matter what the policy is about arson: “all the owner needs to do” is to commit arson without being caught, which is exactly the same thing whether or not arson is excluded from the policy, since committing arson on your own good to receive payment from insurance is insurance fraud anyway. The only thing that changes if arson is excluded is if the arson is committed by somebody else! > Either way, that the insurance policy would pay him if he burnt his place down is literally the moral hazard. But you are making things up! This particular moral hazard would only exist if insurance fraud was not a crime in itself, which it is already! And as such, there can be no such moral hazard, because no insurance company is to pay a dude that burns down his own place no matter if there's an exclusion about arson in their contract. > That they would exclude if he did it himself, and would investigate it, is what the company is doing to attempt to mitigate that moral hazard. But it always exists. The company would have to do no investigation and it would do no mitigation, as it would be the police investigating to protect public order. AS I said before, the moral hazard would only exist in a place where insurance fraud is not recognized as a fraud. Saying that this a moral hazard is like saying that bank robbery is a moral hazard on the perspective of banks, and that's clearly not what this phrase means.
  - lazide 2y ago
    [flagged]
    - littlestymaar 2y ago

lazide 2y ago

All I can say is you clearly don’t understand what moral hazard is, because my example is a textbook (literally) example of it. [https://www.merriam-webster.com/dictionary/moral%20hazard][https://2012books.lardbucket.org/books/enterprise-and-individual-risk-management/s05-05-perils-and-hazards.html] https://www.merriam-webster.com/dictionary/moral%20hazard][h... If the owner won’t lose out on the payout from insurance by committing arson, or could plausibly get away with it without getting caught, he is experiencing a moral hazard to commit arson. It’s only insurance fraud if he lies to get a payout from insurance. Which means the insurance policy would need to have an exclusion to not pay him out if he committed the arson, so he lied about it. If it did not have that exclusion, then he doesn’t need to lie about it, hence no fraud. Either way, that the insurance policy would pay him if he burnt his place down is literally the moral hazard. It’s called a moral hazard because it creates an incentive for him to commit an immoral act that he otherwise would not. It’s existence is a hazard to his morals. That they would exclude if he did it himself, and would investigate it, is what the company is doing to attempt to mitigate that moral hazard. But it always exists.

deleted 2y ago
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littlestymaar 2y ago
> All I can say is you clearly don’t understand what moral hazard is, because my example is a textbook (literally) example of it. [https://www.merriam-webster.com/dictionary/moral%20hazard][h https://www.merriam-webster.com/dictionary/moral%20hazard][h... This random example is interestingly at odds with all the other definitions and example on that very web page! > If the owner won’t lose out on the payout from insurance by committing arson, or could plausibly get away with it without getting caught, he is experiencing a moral hazard to commit arson. This makes zero sense, because in that line of reasoning, the moral hazard is always there no matter what the policy is about arson: “all the owner needs to do” is to commit arson without being caught, which is exactly the same thing whether or not arson is excluded from the policy, since committing arson on your own good to receive payment from insurance is insurance fraud anyway. The only thing that changes if arson is excluded is if the arson is committed by somebody else! > Either way, that the insurance policy would pay him if he burnt his place down is literally the moral hazard. But you are making things up! This particular moral hazard would only exist if insurance fraud was not a crime in itself, which it is already! And as such, there can be no such moral hazard, because no insurance company is to pay a dude that burns down his own place no matter if there's an exclusion about arson in their contract. > That they would exclude if he did it himself, and would investigate it, is what the company is doing to attempt to mitigate that moral hazard. But it always exists. The company would have to do no investigation and it would do no mitigation, as it would be the police investigating to protect public order. AS I said before, the moral hazard would only exist in a place where insurance fraud is not recognized as a fraud. Saying that this a moral hazard is like saying that bank robbery is a moral hazard on the perspective of banks, and that's clearly not what this phrase means.
- lazide 2y ago
  [flagged]
  - littlestymaar 2y ago