What is meant by "moral hazard" in risk management?

Moral hazard in risk management refers to the phenomenon where the behavior of the insured individual changes after they have obtained insurance coverage. This shift can occur because the individual feels less vulnerable to the consequences of risk, knowing they are financially protected by their insurance policy. For instance, if a person has insurance for their car, they may be less cautious about locking the vehicle or avoiding reckless driving because they believe any damage or loss will be covered by their insurer.

This change in behavior can lead to an increase in the likelihood of insurance claims, as the insured may take greater risks than they would have if they were not insured. Understanding moral hazard is crucial for insurers, as it affects how they design policies, determine premiums, and manage overall risk.

The other options refer to different types of risks, such as natural disasters, economic downturns, and workplace accidents, none of which directly relate to the change in behavior that occurs post-insurance coverage. Thus, B accurately captures the essence of moral hazard, focusing specifically on the insured's behavior and its impact on insurance outcomes.