An applicant with a history of five suspicious claims embodies which type of hazard?

The situation described involves an applicant who has a history of five suspicious claims, which points to potential unethical behavior regarding insurance. This is indicative of a moral hazard. Moral hazards arise when an individual's behavior changes as a result of having insurance coverage, leading them to take risks they might not otherwise take because they believe they are shielded from the consequences.

In this case, the applicant's pattern of submitting suspicious claims suggests a likelihood of engaging in deceitful or reckless behavior to gain insurance benefits, exemplifying the essence of moral hazard. Rather than a simple act of negligence or an illness related to health, this situation indicates a deliberate choice to commit fraud, making moral hazard the most appropriate classification.

Understanding moral hazard is important, as it emphasizes the responsibility of both parties in an insurance agreement. The insurer must assess the ethical behavior of applicants to mitigate risks associated with potential fraudulent claims.