Which statement best describes morale hazards?

Morale hazards refer to the risks that arise from an individual's carelessness or lack of concern for potential loss due to the safety nets provided by insurance. When individuals become indifferent to their actions or the consequences of those actions, they may engage in riskier behavior since they feel a sense of security from having insurance coverage. This attitude can inadvertently lead to an increase in the likelihood of a loss occurring, as individuals may not take the proper precautions to avoid risks.

For instance, if someone knows they are insured against theft, they might leave their doors unlocked or not take standard security measures, demonstrating a lack of concern about potential loss. This indifference is at the heart of morale hazards, distinguishing them from other types of hazards related to intentional actions or inherent characteristics of an object.