How is "moral hazard" characterized?

Moral hazard is characterized by the increased risk of loss due to riskier behavior when an individual is insured. This concept arises when the existence of insurance coverage influences the behavior of the insured party, often leading them to take on greater risks than they would have if they had to bear the full costs of those risks themselves.

For example, a person with comprehensive car insurance may drive more recklessly or park in unsafe areas because they believe that their insurance will cover any damages. This change in behavior, prompted by the knowledge that losses will be compensated, exemplifies moral hazard. It reflects a fundamental concern in insurance economics, as it can lead to higher claims and increased costs for insurers.

The other answer choices present contrasting characteristics. Reduced risk-taking due to insurance, complete financial safety, and a decrease in the likelihood of claims do not encapsulate the essence of moral hazard; rather, these would represent situations where insurance effectively mitigates risk or provides a safety net, which is the opposite of promoting riskier behaviors.