Introduction: You are the representative of an insurance company and have been asked to recheck the application of Mr. Andrew Smith. Mr. Andrew Smith has taken an insurance policy for all the members of his family. Mr. Andrew Smith suffers from a genetic disorder that afflicts all members of his family. The disorder affects the lungs and can cause sudden death if the person indulges in a strenuous physical activity or exercise. At the moment, the entire family is in good health and no one in the neighborhood is aware of this malady. Mr. Andrew Smith has not disclosed any information about this genetic disorder to the insurance company.
Task: Discuss whether this act amounts to a moral hazard. If not, under what circumstances can it be termed as moral hazard? Begin the discussion as follows:
Discuss at least two acts that can be included in moral hazard.
Discuss the circumstances in which any act becomes a moral hazard.
Build your responses based on the following:
- Possible safeguards to avoid a moral hazard.
- At least two ill effects of a moral hazard.