Which statement is true regarding moral hazards?

Moral hazards refer to the risks that arise from the behavior and actions of the insured individuals after obtaining insurance coverage. When an individual feels protected by insurance, they may engage in riskier behaviors because they know that the insurance company will cover any potential losses. This increased risk-taking behavior contributes to the overall risk profile of the insured, which is a key aspect of moral hazards.

In contrast, physical hazards involve tangible conditions—such as the state of a building or vehicle—that increase the likelihood of a loss occurring. The other options do not accurately capture the essence of moral hazards; hence, they do not reflect the true nature of this concept within the insurance framework. Understanding that moral hazards specifically stem from the attitudes and behaviors of the insured is crucial for effectively managing risk in insurance practices.