What does "moral hazard" refer to in the context of insurance?

Moral hazard refers to the phenomenon where individuals or entities may take on riskier behavior because they are insulated from the consequences of that behavior, usually due to a form of insurance coverage. In the context of insurance, when a party knows that they are protected against certain losses, they might engage in actions that they otherwise would have avoided, knowing that the financial impact of those actions will be borne by the insurer.

For example, a person with comprehensive car insurance may drive more recklessly than they would if they were fully responsible for the costs of any potential accidents. This increase in risk-taking behavior due to the protective cover of insurance is what embodies the term "moral hazard."

In contrast, the other options are focused on different aspects of risk but do not capture the essence of moral hazard as it specifically relates to behavior modifications influenced by insurance.