Dear writer, when, as you wrote, “the insured is unwilling to take any or very few steps necessary to reduce the potential for injury or damage to persons or property, then his attitude has morphed into a moral hazard”, actually describes MORALE hazard, not MORAL hazard. There is a difference. This is insurance 101 stuff.
What are you talking about? The concept of “Moral Hazard” (NOT Morale)is well-known, and applies to this fact pattern. I won’t evne dignify this with a link. Look it up.
Aside from because you think you are a genius, why don’t you search the word before chiding somebody about it? Both words are used, and have different meanings. As the person stated, and then you rip on, this is insurance 101. What the person describes is morale hazard.
Hi David. You are correct that the concept of “moral hazard” is well known, but it appears that you don’t know what it means. What is described here is 100% morale hazard. I suggest you take your own advice and look it up as to not further embarrass yourself in such a public forum.
Common, where I come from, when I see an insurance company placing an unusually high value on a home beyond industry standards in order to collect more premium, they are creating a “Moral Hazard” for those who are unscrupulous and might commit Arson to try to collect a huge settlement.
In the insurance world, yes, absolutely you are correct vox.
My degree is in economics and how the Mr. Boggs used the term ‘moral hazard’ is exactly how it’s used in that context, and increasingly society at large.
Just wanted to point out that vox is technically correct, and Mr. Boggs wrote an excellent article using the term’s more-generally-understood definition.
I’m frustrated with dispelling these myths on a daily basis. I run into the 1099 one a lot. Just because you are paying them as a 1099, doesn’t mean they can’t get hurt and sue you! At the time of the loss their lawyer is going to prove he was an employee and in CA the employee almost always wins.
If you are the NY Football Giants, you might have an out of control, idiotic wide receiver hazard and an idiotic head football coach for not reigning him in before he made a fool out of himself and cost a one game suspension and heavy fine.
Not sure I agree with the bit about public adjusters…
“An ethical firm will try to get the insured exactly what they are owed as per the policy provisions and limits.”
So if this ethical firm gets the insured exactly what they are owed, once the insured gives the adjuster his or her cut, the insured’s holding the bag for the adjuster’s fees. And now has less than “exactly what they are owed.”
Having encountered a few PA’s in my 31 years I, too, don’t agree with the assertion that they can be beneficial. The other item that continues to amaze me, although it wasn’t specifically mentioned, is the number of HO policies that are sold that afford ACV coverage only. They are not significantly less expensive. Can’t figure out why they are marketed. I really enjoyed the article.
Greg, believe it or not, but there is a market for ACV HO, but not many standards write them. They are found mainly in Excess/Surplus lines and are often sold to people who have less than ideal homes, very low credit or have immigrant status issues. Sometimes, that is the only way to offer coverage to these people and by the way, they are often higher in cost than the Standards.
IF ACV is defined to be RC – Depreciation, then ACV coverage on a new property should be pretty close to RC coverage.
ACV or market value have their place with an ISO HO-8 or company equivalent, for example, if you have a large older home with lath and plaster, ornate cornices, heavy timber construction, etc. with a HUGE replacement cost, but you don’t want to pay to insure it at a value you won’t need to fund replacement with a more contemporary home. Plus, RC on such a home might be considered by the carrier to present a higher moral (not morale) risk.
If insurance isn’t society’s organizing force, then what is? You could make the argument that without insurance no one be able to run a business due to the constant threat of law suits or unforeseen losses.
I have enjoyed watching the debate over moral vs. morale hazard. There is no deep secret here – I left off the “e.” I know what I meant – the computer didn’t. “Really” was right.
To allow others the same pleasure of the debate, I’m going to leave it alone for a few more days. Then I will change it to make everyone happy.
Thinking and demonstrate that the insurer is the administrator of a mutual fund will always be the best solution against lies and misunderstandings about our business. Too bad the nomenclature does not help.
Francisco, I have seen many changes in policy language over the years. Policies written many years ago were understood only by gifted lawyers on the language. The industry was under pressure to design policies in “plainer language” and finally did some changes to make policies easier to understand.
In many ways, policies are easier to read, but not necessarily easier to understand. If they were, these statements would be true:
“Law will be simplified over the next century. Lawyers will have diminished and their fees will have been vastly curtailed.” — NY Tribune journalist Junius Henri Browne, 1893
“It is my view that this court could, and should, when such an ambiguous policy is before it, hold without equivocation that the provisions which are confusing and ambiguous as to the liability covered will be resolved in favor of the insured. If a few such forthright decisions were rendered by this court in this field it would not be long before insurance policies were more clearly and understandably written to express the true intent of the parties and there would be less litigation involving insurance policies.” — Geddes & Smith, Inc. v. St. Paul Mercury Indem. Co., 51 Cal. 2d 558, 47 Cal. Rptr. 564, 334 P.2d 881 (1959)
Bill, I am afraid we now live in a dumbed down, entitled and angry society brought about by Progressives who want to upset the most successful country in the history of the world. Obama has done enormous damage in the past 7 years and we need to reverse that damage starting Jan 20th, 2017.
I think it’s ridiculous that we are forced to pay higher insurance premiums will leave had insurance for the past 30 years. We don’t agree to pay those prices for the insurance companies negotiate for us With the doctors and hospitals. The insurance companies should be forced to go nonprofit. I say that we should all call them to this three times on April 1st, April fools day, to let them know that we should not be treated like fools. It’s not against the law to call them and let them know how unhappy we are with the dishonest conduit, colluding with each other to keep the rates high, and forcing us to pay for something where we have no choice but to only choose between one or two different health insurance companies within a certain region. This is not a free-market when you are forced to choose between only a couple different health insurances.
great article.
Dear writer, when, as you wrote, “the insured is unwilling to take any or very few steps necessary to reduce the potential for injury or damage to persons or property, then his attitude has morphed into a moral hazard”, actually describes MORALE hazard, not MORAL hazard. There is a difference. This is insurance 101 stuff.
What are you talking about? The concept of “Moral Hazard” (NOT Morale)is well-known, and applies to this fact pattern. I won’t evne dignify this with a link. Look it up.
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Hi David. You are correct that the concept of “moral hazard” is well known, but it appears that you don’t know what it means. What is described here is 100% morale hazard. I suggest you take your own advice and look it up as to not further embarrass yourself in such a public forum.
Common, where I come from, when I see an insurance company placing an unusually high value on a home beyond industry standards in order to collect more premium, they are creating a “Moral Hazard” for those who are unscrupulous and might commit Arson to try to collect a huge settlement.
In the insurance world, yes, absolutely you are correct vox.
My degree is in economics and how the Mr. Boggs used the term ‘moral hazard’ is exactly how it’s used in that context, and increasingly society at large.
http://lmgtfy.com/?q=moral+hazard
Just wanted to point out that vox is technically correct, and Mr. Boggs wrote an excellent article using the term’s more-generally-understood definition.
And manners 101 says to allow room for misspelling.
Maybe it was misunderstanding, not misspelling.
I’m frustrated with dispelling these myths on a daily basis. I run into the 1099 one a lot. Just because you are paying them as a 1099, doesn’t mean they can’t get hurt and sue you! At the time of the loss their lawyer is going to prove he was an employee and in CA the employee almost always wins.
Good insight and worth repeating- – often. Too much emphasis is given to price alone.
the correct term is “morale” hazard
If you are a restaurant serving wild mushrooms, you have a morel hazard.
And if you’re the UCLA athletic Department, you have a Mora hazard. They used to have a Walt Hazzard.
Well done, you two. :)
If you are the NY Football Giants, you might have an out of control, idiotic wide receiver hazard and an idiotic head football coach for not reigning him in before he made a fool out of himself and cost a one game suspension and heavy fine.
Not sure I agree with the bit about public adjusters…
“An ethical firm will try to get the insured exactly what they are owed as per the policy provisions and limits.”
So if this ethical firm gets the insured exactly what they are owed, once the insured gives the adjuster his or her cut, the insured’s holding the bag for the adjuster’s fees. And now has less than “exactly what they are owed.”
Having encountered a few PA’s in my 31 years I, too, don’t agree with the assertion that they can be beneficial. The other item that continues to amaze me, although it wasn’t specifically mentioned, is the number of HO policies that are sold that afford ACV coverage only. They are not significantly less expensive. Can’t figure out why they are marketed. I really enjoyed the article.
Greg, believe it or not, but there is a market for ACV HO, but not many standards write them. They are found mainly in Excess/Surplus lines and are often sold to people who have less than ideal homes, very low credit or have immigrant status issues. Sometimes, that is the only way to offer coverage to these people and by the way, they are often higher in cost than the Standards.
IF ACV is defined to be RC – Depreciation, then ACV coverage on a new property should be pretty close to RC coverage.
ACV or market value have their place with an ISO HO-8 or company equivalent, for example, if you have a large older home with lath and plaster, ornate cornices, heavy timber construction, etc. with a HUGE replacement cost, but you don’t want to pay to insure it at a value you won’t need to fund replacement with a more contemporary home. Plus, RC on such a home might be considered by the carrier to present a higher moral (not morale) risk.
What a bunch of drivel.
I learned nothing from the article, except that the author seems to believe insurance is society’s principle organizing force.
If insurance isn’t society’s organizing force, then what is? You could make the argument that without insurance no one be able to run a business due to the constant threat of law suits or unforeseen losses.
I have enjoyed watching the debate over moral vs. morale hazard. There is no deep secret here – I left off the “e.” I know what I meant – the computer didn’t. “Really” was right.
To allow others the same pleasure of the debate, I’m going to leave it alone for a few more days. Then I will change it to make everyone happy.
My mistake for assuming it was intentional. Cheers.
Thinking and demonstrate that the insurer is the administrator of a mutual fund will always be the best solution against lies and misunderstandings about our business. Too bad the nomenclature does not help.
Francisco, I have seen many changes in policy language over the years. Policies written many years ago were understood only by gifted lawyers on the language. The industry was under pressure to design policies in “plainer language” and finally did some changes to make policies easier to understand.
In many ways, policies are easier to read, but not necessarily easier to understand. If they were, these statements would be true:
“Law will be simplified over the next century. Lawyers will have diminished and their fees will have been vastly curtailed.” — NY Tribune journalist Junius Henri Browne, 1893
“It is my view that this court could, and should, when such an ambiguous policy is before it, hold without equivocation that the provisions which are confusing and ambiguous as to the liability covered will be resolved in favor of the insured. If a few such forthright decisions were rendered by this court in this field it would not be long before insurance policies were more clearly and understandably written to express the true intent of the parties and there would be less litigation involving insurance policies.” — Geddes & Smith, Inc. v. St. Paul Mercury Indem. Co., 51 Cal. 2d 558, 47 Cal. Rptr. 564, 334 P.2d 881 (1959)
;-)
Bill, I am afraid we now live in a dumbed down, entitled and angry society brought about by Progressives who want to upset the most successful country in the history of the world. Obama has done enormous damage in the past 7 years and we need to reverse that damage starting Jan 20th, 2017.
I think it’s ridiculous that we are forced to pay higher insurance premiums will leave had insurance for the past 30 years. We don’t agree to pay those prices for the insurance companies negotiate for us With the doctors and hospitals. The insurance companies should be forced to go nonprofit. I say that we should all call them to this three times on April 1st, April fools day, to let them know that we should not be treated like fools. It’s not against the law to call them and let them know how unhappy we are with the dishonest conduit, colluding with each other to keep the rates high, and forcing us to pay for something where we have no choice but to only choose between one or two different health insurance companies within a certain region. This is not a free-market when you are forced to choose between only a couple different health insurances.