What could potentially increase the cost of an insurance policy in relation to moral hazards?

Moral hazards refer to situations where a policyholder's behavior may change as a result of having insurance coverage, potentially leading to increased risks or losses for the insurer. Poor personal habits can lead to behaviors that increase the likelihood of a claim being made. For example, an individual with poor personal habits, such as reckless driving or smoking, may expose themselves and their property to greater risks of loss or damage.

When insurers assess the risk associated with covering a policyholder, they consider lifestyle choices and habits that might increase the chance of an incident occurring. Therefore, if a policyholder is deemed to have poor personal habits, the insurer may estimate a higher probability of claims in the future, prompting them to raise the cost of the insurance policy to account for the increased risk. This enhances the insurer's ability to cover potential future claims while maintaining financial stability.

In comparison, infrequent claims typically do not correlate with increased costs, as they may indicate a lower overall risk. High-value assets might require higher premiums due to their intrinsic value rather than moral hazards. Severe weather conditions are external factors accounted for in risk assessments but do not directly reflect a policyholder's behavior, which is crucial in evaluating moral hazards.