What are the impacts of moral hazards on insurance?

Moral hazards refer to circumstances where an insured person may take on more risk because they are shielded from the consequences of that risk by insurance coverage. This behavior can lead to an increase in the likelihood of claims being made, as individuals may act recklessly or engage in riskier behavior knowing that they are covered. For instance, a person might be less cautious about preventing losses or damages if they believe their insurance will compensate them for any resulting claims.

In contrast to other options, the factor mentioned in the correct answer speaks directly to the behavioral aspect of individuals after obtaining insurance coverage. The presence of moral hazards can lead to increased costs for insurers, as they may face a higher frequency or severity of claims, ultimately affecting premiums in the long run.