Hazard
A hazard can be defined as anything such as a situation, condition, operation, activity or substance that increases the likelihood of an accident or loss taking place and it can also have an influence on the size of the loss. In insurance, including car insurance, we can come across both physical and moral hazards.
In insurance terms we also refer to a risk as a peril and define that as the source or cause of a loss. Here we can think of examples such as a fire or storm. A hazard is the condition that may create or increase the severity of a loss resulting from the given peril. Faulty wiring is a hazard as it increases the likelihood of a fire taking place and resulting in a loss.
Physical or tangible hazards arise from the physical characteristics of the object. Weather patterns, the construction of a building, pollution, chemical properties and industrial processes can all pose as physical hazards.
Moral hazards stem from the personal characteristics of the insured such as dishonesty, lack of integrity or carelessness. A moral hazard is the risk that an insured may attempt to take an unfair advantage because of the existence of insurance, for example by submitting a false claim.