Ace Michigan Property & Casualty Exam 2025 – Secure Your Success & Insure Your Future!

The scenario where an insured intentionally damages property to collect insurance exemplifies moral hazard because it involves a deliberate action taken by the insured that increases the insurer's risk. Moral hazard refers to situations where a person may take risks because they do not bear the full consequences of their actions, particularly when they believe they are protected from those consequences by insurance coverage. In this case, the insured's decision to cause harm to their own property reflects a change in behavior influenced by the presence of insurance, as they are motivated by the potential financial gain rather than the genuine desire to protect their assets.

In contrast, neglecting maintenance on a property or failing to report a loss timely can be attributed to carelessness or oversight rather than a conscious decision to increase risk for personal gain. Experiencing a natural disaster is a random event and not a result of the insured's actions or decisions, thus it does not illustrate moral hazard.