Casualty Actuarial Society (CAS) Practice Exam 2025 – The Comprehensive All-in-One Guide for Exam Success!

For older vehicles, moral hazard refers to the behavioral changes that may occur when the owner perceives they have insurance coverage that might not proportionately reflect the vehicle’s value. Owners of older vehicles may be more inclined to take risks or engage in negligent behavior, believing that any potential loss will be covered by insurance. This perception can lead to an increased likelihood of making claims, thus presenting a concern for underwriters in evaluating the potential risk associated with insuring these vehicles.

While other concerns such as emissions standards, repair costs, and usage may also factor into underwriting decisions, the aspect of moral hazard specifically underscores the psychological and behavioral implications that can arise from insuring older vehicles. This concern is particularly pertinent in the context of how policyholders may respond to having coverage, which ultimately affects the underwriting risk profile and potential claims experience for insurers.