Which of the following is an example of a moral hazard?

A moral hazard occurs when an individual's behavior changes as a result of having insurance coverage, leading them to engage in riskier activities than they otherwise might. In this case, choosing to engage in risky behavior while knowing that insurance will cover potential losses exemplifies this concept. The individual's awareness that they have coverage may encourage them to take greater risks, as they do not fully bear the consequences of their actions. This behavior ultimately heightens the potential for loss, which impacts not only the insured party but also the insurance system as a whole.

For example, someone may decide to drive recklessly or skip precautionary measures because they believe that any damage or injury will be compensated by their insurance policy. This shift in mindset creates a riskier situation than if the individual had to assume full responsibility for their actions. Thus, engaging in risky behavior with the assurance of insurance coverage is a clear manifestation of moral hazard.