Insurance can have several effects on society as it changes the dynamics of who shoulders the cost of losses and damage in certain events.
Insurance can increase the opportunities for fraud; It can also help societies and individuals prepare for or soften the blow of catastrophes.
Insurance can dictate the probability of losses through moral hazard, insurance fraud, and insurance company’s specific preventive measures.
Insurance scholars tend to use moral hazard to refer to the increased loss due to unintended carelessness and insurance fraud to mean increased risk due to intentional carelessness or indifference.
Insurance companies try to address this carelessness through inspections, policy provisions, requiring maintenance, and possible discounts in the case of loss mitigation efforts.
While in theory, insurance companies can encourage investment in loss reduction, some commentators and analysts have argued that in practice, these companies have historically not aggressively pursued loss control measures–mainly to prevent disaster damages due to concerns over rate reductions and legal battles.
Since about 1996, however, insurance companies have begun to take on a more active role in loss mitigation, such as building codes.
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