The complainant Sneha the proprietress of M/s Tungabhadra Agro Industries, purchased a burglary policy and cash insurance policy for the period 14-04-2004 to 13-04-2005 to cover money in a locked safe in her premises for

Differentiation between Risk, Peril, and Hazard: Risk: Risk is the potential of loss (an undesirable outcome, however not necessarily so) resulting from a given action, activity and/or inaction. The notion implies that a choice having an influence on the outcome sometimes exists (or existed). Potential losses themselves may also be called "risks". Any human endeavour carries some risk, but some are much riskier than others. Risk can be defined in seven different ways: The probability of something happening multiplied by the resulting cost or benefit if it does. The probability or threat of quantifiable damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through pre-emptive action. Peril: A peril is the cause of a loss. For example, in a fire insurance policy, fire is the peril. In a life insurance policy, death is the peril. Other common perils include theft, windstorm, and collision. Hazard: Hazard is important when an insurance company is deciding whether or not it should insure some risk and what premium to charge. So a hazard is a condition that creates or increases the chance of loss. There are three major types of hazards: Physical Hazard: A physical condition that increases the chance of loss (e.g., icy roads, defective wiring). Moral Hazard: Moral hazard concerns the human aspects which may influence the outcome. Moral hazard is dishonesty or character defects in an individual that increase the chance of loss. For example, a business firm may be overstocked with inventories because of a severe business recession. If the inventory is insured, the owner of the firm may deliberately burn the warehouse to collect money from the insurer. In effect, the unsold inventory has been sold to the insurer by the deliberate loss. A large number of fires are due to arson, which is a clear example of moral hazard. Moral hazard is present in all forms of insurance, and it is difficult to control. Dishonest insured persons often rationalise their actions on the grounds that "the insurer has plenty of money". This is incorrect since the company can pay claims only by collecting premiums from other policy owners. Morale Hazard: Indifference to loss because of the existence of insurance (e.g., leaving car keys in an unlocked car). In the given case, the hazard present is an example of Moral hazard , as the Final Investigation Report highlighted that the complaint was intentionally registered on account of financial burden on the complainant as she had taken a loan to start the factory and could not make payment regularly, suggesting a dishonest intent to claim insurance benefits.