North Carolina Adjuster Practice Exam

What is a physical hazard in insurance terms?

1. A behavioral risk

2. A condition that increases the likelihood of a loss

3. A financial issue

4. A natural disaster

The correct answer is: A condition that increases the likelihood of a loss

In insurance terminology, a physical hazard refers to a condition that increases the likelihood of a loss occurring. This can include various tangible factors that may contribute to the risk associated with an insured entity. For example, a building's structural integrity, the presence of flammable materials, or inadequate security measures can all be considered physical hazards. These elements impact the probability and potential severity of an insured risk, making them crucial considerations for underwriters and adjusters when evaluating coverage and claims. The other options highlight concepts that do not align with the definition of physical hazards. Behavioral risks pertain to human actions and choices, financial issues address monetary factors affecting an entity, and natural disasters are unique events that can lead to losses but do not represent inherent conditions that elevate risk on their own. The focus here is specifically on how certain physical conditions or situations can directly influence the likelihood of a loss, making option B the most accurate representation of a physical hazard in insurance.