If a person submitted a fraudulent claim in the past, what type of hazard do they represent?

When a person submits a fraudulent claim, they exemplify what is known as a moral hazard. This term refers to a situation where an individual may take risks or act dishonestly because they do not bear the full consequences of their actions. In this case, the individual, by committing fraud, is demonstrating a lack of integrity or morals, which can lead to increased costs for insurance companies and potentially higher premiums for all policyholders.

Moral hazards arise when people alter their behavior once they have insurance coverage, knowing that they are partially insulated from the financial repercussions of their actions. This is different from physical hazards, which involve physical conditions that increase the likelihood of a loss. Other options like exposure risk and environmental hazard relate to different contexts where risks arise but do not capture the ethical dimensions of the individual’s behavior associated with submitting a fraudulent claim. Thus, identifying the situation as a moral hazard correctly highlights the ethical implications underlying the fraudulent activity.