01 / The meaning
What it means.
In traditional insurance terminology, the expression is sometimes used more narrowly for dishonesty or intentional conduct. In economics, it can include less visible changes in behaviour because some consequences are transferred to another party. Explain the intended meaning when using the term in a risk report. It should not become an unsupported accusation about a worker or customer.
For a business, practical controls include clear purchasing authority, documented claims evidence and appropriate oversight of decisions that expose others to loss. An excess can leave the business bearing part of a loss, but its existence does not remove every incentive problem. Deliberate loss creation and fraudulent claims raise separate legal and policy issues requiring their own assessment.
02 / Put it in context
A practical example.
Hypothetical example: A team treats insured equipment as if replacement were automatic and starts taking avoidable risks with it. Management reviews incentives, supervision and handling procedures. That pattern can be discussed as moral hazard without assuming fraud or that any resulting damage will be insured.
This example illustrates the term. It does not predict a claim outcome.
03 / Read the detail
What to check.
- Clarify whether the term concerns incentives, dishonesty or careless behaviour.
- Identify who makes decisions and who bears their consequences.
- Review oversight, evidence requirements and responsibility for excesses.
04 / Start a useful conversation
A question for your broker.
Could the insurance arrangement change behaviour in a way that increases exposure?
05 / Connect the terms
Keep the meaning in context.
06 / Apply it to your business
Related insurance guides.
Further reading
Read the source guidance alongside the relevant policy wording.
General information only. This does not take into account your objectives, financial situation or needs. Before acting, consider whether the information is appropriate for you. Cover is subject to insurer acceptance and the policy terms, conditions, limits and exclusions. Read the Financial Services Guide and the relevant PDS (where applicable) and/or policy wording before deciding.
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