Which hazard arises from an insured’s indifference to potential loss due to having insurance?

The correct choice is morale hazard, which refers to the increased risk of loss that arises when an insured individual shows indifference or carelessness about potential losses, often because they have insurance coverage to back them up. This phenomenon can lead individuals to take greater risks than they would if they were fully responsible for the consequences of their actions, as they may feel shielded by their policy.

For example, if a person has comprehensive insurance on their car, they might drive more recklessly or leave it unlocked, believing that any potential damage will be covered. This indifference to the risk of loss reflects a lack of concern because they feel insulated from the financial repercussions due to their insurance.

The other types of hazards do not fit this description: physical hazard refers to tangible conditions that increase the likelihood of loss, moral hazard involves dishonest or fraudulent behavior that increases the chance of loss due to the insured's conscious actions, and dynamic hazard relates to changes in risk over time due to environmental factors or social conditions. Morale hazard specifically captures the scenario where an individual becomes careless or indifferent as a result of being insured, making it the correct answer in this context.