Understanding and explanation of moral hazard within the scope of insurance

There's an interesting thing when I read a book called the fundamentals of insurance works of Drs. A. Salim Abbas. He wrote these words on his book ie morale and hazard. At first glance I thought what is the meaning of the word. Hazard is usually identical to the objects of toxic and dangerous. While morale is identical with the meaning of one's mental. However, after I read was very much different than what I thought. These include an explanation of the hazard as well as opening our initial conversation about the morale hazard within the scope of insurance.

Before entering what is the meaning and intent of the word morale hazard, let us first discuss in detail what the hazard. The technical term insurance, Peril, which means everything that could result in losses. While the hazard is a situation that adds to the possibility of peril, or hazard itself is a situation where it would boost the probability of losses stemming from peril. Hazard itself divided over:

• Physical Hazard. That is a physical hazard and an element of objectivity. For example: physical damage due to fire, collision, and a wide range of events that can cause physical damage.
• Morale Hazard. Hazard that is related to a person and contains a subjective element. For example, someone intentionally slammed car into a tree in order to receive compensation from the insurer.

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In this article we will talk more about the morale hazard. If viewed as a physical hazard of understanding can we ingest because that name will provide warranty insurance to the insured when exposed to loss by accident, especially in terms of physical damage. So morale hazard would be more interesting because it brought about a lack of caution that will cause harm to it. For example, when we are on the way suddenly turned the other way and when it is driven by the vehicle will go faster and will result in an accident. Such action may result in losses for the insured. Due to the risk factor in the loss of morale hazard, the hazard insurance experts divide into two types of categories.

A. Personal Risk and Risk Families. 

Risks that exist on the scope of cloning and the family is a risk of loss of income and property. Loss of revenue due to the events that lead to loss of revenue that can cause life to be difficult because of the financial factor. While the objects usually belong to the property. These include:

 
Loss of income. A person or family could lose revenue due to:

• Mortality. Loss of revenue caused the death of a person or family in particular.
• Permanent disability. When a person experiences events that caused permanent disability then he will not be able again to find the optimal income due to disability or even expelled.
• Temporary disability. For the time being unable to earn a living because of illness.
• Unemployment. A person who is unemployed resulted in loss of income.

Property losses. Property loss is a loss that resulted in all the objects that become the property of a person or family becomes unusable. Milli constitutional rights can be caused by:
Natural disasters, fraud, forgery handwriting, Robbery and Theft, Impact melee.

B. Company risk.  

Of a risk accepted by the company with a different result. All these factors are capable of inflicting damage against the company as well known as morale hazard. Risks faced by the company consists of:

1. Perils of transportation of goods on land-sea. Losses that occur during transport of goods on land or at sea. Generally covered by Marine Cargo Insurance. As for the ocean freight insurance identical to Marine Insurance.
2. Hail (Hot Wind), Frost (low air) and other cases of damage to crops. Examples are found only in developed countries who have incomes in the plantation sector and agriculture. In the developing countries have not been very visible presence of the insurance field, it is no insurance agricultural insurance such as sugar cane.
3. Dishonesty of employees. These losses are caused by company employees who may be deliberately doing things that are criminal to the company. such cases of corruption, ran the company money, and embezzlement.
4. Failure to fulfill the contract. Contractor must meet a contract. If work is not finished on time then the company's request for compensation on insurance companies. Integration with insurance will pay a certain percentage.
5. The strike, causing losses to the company. Losses incurred due to loss of income and property can be insured. For a person or family who run the risk of loss of income, can be reduced by insurance. Example:Mortality risk due to individual and family, people are trying to cover this risk by purchasing insurance.
6. Incapable Permanently. It concludes with sickness or accident insurance. Similarly, the temporary disability may be covered by sickness insurance. Unemployment. In the event of unemployment insurance coverage is usually guaranteed by the State. This is a risk of government, in countries that have been developed. The property insured with insurance or public insurance.

So, morale hazard is a term that has a very long if we have described again by insurance factors. Morale hazard to the reference material in the insurance holders did transaction to satisfy the insurance is purchased.

Reference: Dasar-dasar Asuransi karya Drs. A. Abbas Salim