How can moral hazard influence claim frequency?

Moral hazard is a concept that arises when an individual's behavior changes to the riskier side after obtaining insurance coverage. When people are insured, they may take greater risks because they know they have coverage for potential losses. This increased willingness to engage in risky behavior can lead to a higher frequency of claims being made.

For example, if a person knows that any damages caused by reckless driving will be covered by their auto insurance, they may be more inclined to engage in behaviors they would normally avoid, such as driving at high speeds or neglecting vehicle maintenance. As a result, the likelihood of accidents and subsequent claims increases.

Other options present different concepts. The first option suggests fewer claims being reported, which contradicts the nature of moral hazard. The third option about denying all claims does not tie in with the behavior changes influenced by having insurance. The fourth choice regarding underwriting is relevant to risk assessment but does not directly connect to how moral hazard impacts claim frequency.

Therefore, the increase in claims due to this shift toward riskier behavior is a direct result of moral hazard, making it the correct answer.