Which term refers to the failure to manage risk appropriately?

The term that describes the failure to manage risk appropriately is known as moral hazard. This occurs when individuals or entities engage in riskier behavior or neglect to take necessary precautions because they do not bear the full consequences of that risk. For example, if someone has insurance coverage, they may be less vigilant about protecting their property, leading to an increased likelihood of a loss.

In contrast, risk avoidance refers to steps taken to eliminate risk entirely, such as not participating in activities that could lead to danger. Pure risk involves situations that present a chance of loss without any opportunity for profit, such as natural disasters or health issues. While morale hazard pertains to an individual's attitude that may lead to careless actions, it is distinct from moral hazard, which specifically relates to the behavior changes that arise due to a safety net like insurance. Understanding these nuances helps in effectively managing risk within the scope of insurance practices and policies.