HAZARD

Hazard can be defined as any occurrence that can either cause or increase the likelihood of a loss. It is referred to as the definite appearance with features that can influence the severity of loss.

 

TYPES OF HAZARD

A) Physical hazard: This is the physical condition that increases the possibility of a loss. In the event of fire outbreak, the hazard present in a building constructed with wood is very high. The severity of the damage that can occur can also be influenced by the use of generator, which requires the use of fuel. Such fuel may be stored for use in the event of scarcity. The erratic power supply in Nigeria can increase the use of naked light in less privileged homes. The situation here will require a proper rating by an insurer because the likelihood of fire incidents is high and the effect can also be enormous.

On the problem of theft, the Nigerian situation is more pathetic, as security at different levels has failed. A well fenced building can be difficult to break into by robbers. However, it will be easy to have access into an unfenced house. The properties in the house can also be viewed from the physical structure of the house, and the lives of those that live in the house can be in danger.

In a store where expensive products such as gold, wines and spirits are sold, theft cases can be much higher, compared to a beverages shop for example.

High level of motor accidents can be recorded in places like Lagos, compared to other places in the country where the population density is low. There are much more usage of motor vehicles on the roads in Lagos State than in those places. The ban on the sale of alcohol can reduce road accidents in Zamfara State for example, unlike places such as Lagos State where such law is not in place.

The use of motorcycles for commercial purpose, popularly known as okada is much more pronounced on Lagos roads. This can equally increase the likelihood of motor accidents on Lagos roads.

Examples of poor physical hazard in the marine risk are the use of poorly equipped or maintained vessels, storage of cargo, deck and bad packaging of goods.

 

B) Moral hazard: Moral hazard is the attitude and conduct of the people insured in relation to risk. This can influence the occurrence of a loss. A moral hazard is a situation where there is tendency to take undue risks because the costs are not borne by the individual involved in the risk. A moral hazard may occur where the behaviour of one party leads to the detriment of another party, after a transaction has taken place. For example, a person with insurance against automobile theft may be careless about his car, because negative consequences resulting from the theft are now the responsibility of the insurance company. A person makes a decision about how much risk to take, while another party bears the cost if things go wrong. The party who is insulated from the risk behaves differently from how he or she will behave if fully exposed to the risk. Other examples of moral hazard are:

1. An insured who obtained an insurance policy with the intention of causing the loss through his action to enable him to make claim from the insurance company.
2. Submission of false or exaggerated claim.
3. Deliberate or innocent misrepresentation of information.
4. Carelessness. For example failure to take reasonable care in preventing the loss from happening, such as poor maintenance of a vehicle leading to break failure.
5. Poor maintenance of employee relationship leading to sabotage, vandalism and willful damage through fire caused by factors such as low level of welfare packages or where employers failed to show concern as to the safety and wellbeing of their employees.

 

RISK, PERIL AND HAZARD

It is not uncommon for the terms – peril and hazard to be used interchangeably with risk. However, to be precise, it is important to distinguish between these terms. Risk is the chance of loss, and peril is the direct cause of the loss. If a house burns down, then fire is the peril. A hazard is anything that either causes or increases the likelihood of the loss. For example, smoking is the hazard that increases the likelihood of a house fire and illness. It is possible for something to be both a peril and a hazard. For example, sickness is a peril causing economic loss, but it is also a hazard that increases the chance of loss from the peril of premature death.