Moral Hazard (Part II)
A good moral hazard situation is where the insured is strictly honest about the subject matter of insurance and takes all necessary steps to protect the insured property, employees and the general public, as well as comply with all legal, safety, regulatory and operational requirements.
Sometimes individuals and corporate entities are able to insure non-existent properties or goods and then come back to make a claim that the property or goods have been destroyed by fire or have been stolen.
In some instances, the unfortunate insured event must have occurred but insureds end up submitting exaggerated claims to the insurance company. In the case of Motor Insurance, sometimes insureds may inflate repair estimates with the connivance of garages or workshops, and even sometimes with the involvement of intermediaries and employees of insurance companies. In some instances, at the time of the accident, the insurance policy may not be in force or the policy might have expired. What some clients, sometimes in collaboration with intermediaries do, is to insure after the incident and then wait a little while to submit a claim, indicating that the incident happened after the insurance policy was bought.
This is purely a criminal offence and some of these issues account for the reason sometimes insurance companies take their time to investigate certain claims submitted to them. Some insureds also stage the claims they submit to insurance companies. Put it differently, they deliberately cause the happening of the unfortunate insured event.
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