Part 2: Underwriting and Policy Wording

Why: The definition of material facts stems from the Principle of Utmost Good Faith. Any fact that would influence a prudent underwriter's decision whether to accept the risk, on what terms, or at what premium level is a material fact. The insured has a duty to proactively disclose all material facts, even if the insurer has not asked.

Why: Physical Hazard refers to the physical characteristics of the insured subject matter, such as the building's construction materials (brick or timber) and geographical location. Moral Hazard refers to risks related to the character, integrity and attitude of the insured, such as whether the insured is honest, whether there is intent to deliberately damage property, or whether there is a history of insurance fraud. Moral hazard is harder to quantify but is equally an important factor for underwriters in assessing risk.