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insurer. In effect, the unsold inventory has been sold to the

insurer by the deliberate loss.

- If a close look is given to statistics involved in insurance

claims due to fires, it is observed that a large number of

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fires are due to arson , which is a clear example of how

widespread is the problem of moral hazard.

Moral hazard is present in all forms of insurance (be it life,

health, motor, property etc), and it is very difficult to

control. Dishonest insured persons often rationalise their

actions on the grounds that "the insurer has plenty of

money" or “I have paid premium for ** years; I am entitled

to this amount”. This is incorrect since the company can

pay claims only by collecting premiums from other policy

owners.

Because of moral hazard, premiums are getting higher

almost every 2-3 years - for all insured, including the

honest ones. Although an individual may believe that it is

morally wrong to steal from a neighbor, he or she often has

little hesitation about stealing from an insurer and other

policy owners by either causing a loss or by inflating the

size of a claim after a loss occurs.

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the criminal act of deliberately setting fire to property

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