In an insurance context, what is a key characteristic of 'morale hazard'?

In the context of insurance, 'morale hazard' refers to a situation where an individual takes on greater risks or exhibits carelessness because they have insurance coverage. This indifference can lead to increased chances of a loss occurring. For instance, if a person knows that their property is insured, they might not take adequate precautions to protect it, believing that any loss will be compensated by their insurance policy. This change in behavior—where the insured party acts with less caution due to the safety net of insurance—highlights the essential nature of morale hazard.

Other aspects of the options touch on different types of risks in insurance. Intentional actions leading to loss pertain more closely to 'moral hazard,' where there is deliberate intent to cause a loss. Legal liabilities associated with property could refer to general liability insurance but do not relate directly to the behaviors and attitudes influencing risk. Environmental factors affecting property may relate to external risks, but do not pertain to the psychological and behavioral dimensions associated with morale hazard.