Which type of hazard is characterized by an insured's indifference due to having insurance?

The correct answer is morale hazard. This type of hazard arises when an insured individual becomes less careful or more reckless about avoiding loss because they have insurance coverage in place. The presence of insurance can lead to a sense of security that might result in a lack of motivation to prevent losses, as the insured may believe that the financial consequences will be managed by the insurer. Essentially, morale hazard reflects a change in behavior due to the existence of insurance, making the insured more indifferent to potential risks.

Moral hazard, though similar in name, specifically relates to dishonest behavior or a tendency to commit fraud, which is not merely about being indifferent to risks but involves a deliberate intention to cause a loss for personal gain. Physical hazards pertain to tangible conditions that increase the likelihood of a loss, such as a faulty electrical system, while environmental hazards involve external factors in the environment that can contribute to the risk of loss, such as natural disasters. Understanding the distinction between these concepts can help clarify how different types of hazards impact insurance risk management.