What do hazards do in relation to insurance?

Hazards are conditions or situations that increase the likelihood of a loss occurring. In the context of insurance, they do not eliminate risks or decrease premium costs; rather, they can contribute to an increased chance of loss by creating a more favorable environment for potentially harmful events. For instance, a hazard could be something like a defective wiring system in a building, which raises the probability of a fire occurring. When an insurer assesses risks, they consider these hazards to determine potential losses and set premium prices accordingly. Therefore, identifying hazards is crucial for insurance companies in evaluating the level of risk they are taking on and deciding how to price coverage.