A study of strategies to avoid moral hazards in liability insurance

Abstract

Purpose: The purpose of this study is to identify what strategies are effective in order to avoid Moral Hazards in Liability Insurance. Design/Methodology: The objectives of this study were achieved through a questionnaire distributed among the general public. Given the variety of participants, it was decided that for the study to be viable, 384 answers had to be gathered. The questionnaire included some demographic information and seven statements for which each participant had to rank on a five-point Likert scale. Responses were analysed through the use of factor analysis, multiple linear regression and ANOVA testing. Findings: Results show that in general, the participants do agree with the mentioned strategies, even though some of them might not be as effective as others. Conclusion: With the application of these strategies, the author believes that many insurance companies can underwrite and issue premiums safer as they will be taking into consideration also the aspect of moral hazard. Value: Taking into consideration that the problem of moral hazards all depends on the insured person, it is at the responsibility of the insurer to make sure that the insured person will be in compliance with the insurance company’s regulation. Hence, this study will help insurance companies in knowing if the strategies they have in place are effective enough to make an impact on the insured’s behaviour, or else if more strategies should be implemented.