Canadian Accredited Insurance Broker (CAIB) Two Practice Exam

What is one type of morale hazard?

1. Poor management

2. Field representative

3. Claims reports

4. Fire resistance

The correct answer is: Poor management

Morale hazard refers to a situation where an individual's behavior changes when they are insulated from risk, often leading to careless or reckless actions. Poor management can lead to morale hazard because it may create an environment where employees or personnel do not feel personally accountable for their actions. If individuals believe that they are protected from the consequences of their actions—due to inadequate oversight or a lack of proper procedures—they might engage in riskier behaviors, creating a higher likelihood of loss or damage. In contrast, the other options do not represent morale hazards. A field representative is typically a role related to client interaction or sales, which does not inherently involve behavior that risks losses. Claims reports are documentation of losses that have occurred and do not influence the behavior of individuals in terms of risk-taking. Fire resistance pertains to physical safety measures that mitigate the impact of fires and do not involve behavioral aspects. Understanding these distinctions helps in identifying types of hazards pertinent to risk management in insurance.