Why home insurance companies are sensitive to lapses in the insurance?
Insurance companies are wary of lapses in any kind of insurance policies. In your case it just happened to be home insurance. The single most feared factor in the insurance business is not hurricanes, not bush-fires, not wars, not meteor strikes but what’s known as ‘moral hazard’. Moral hazard is, in simple terms, lack of inhibition in preferring a claim under less than above-the-board circumstances. For example, if your camera is insured for home use only, you cannot make a claim if the insured camera suffers damage during a jungle safari. Most of us, being honest persons, would not even want to claim under such circs. However, since, as a rule it takes all kinds to make this world, there exist individuals who would make a claim as if the damage occurred at home. Such individuals are considered to be ‘moral hazards’. Coming back to your original question, insurance companies know from empirical evidence that the incidence of moral hazard is greater – much greater – in those cases wher
