The insurance industry itself is sometimes considered a morale

hazard, in that having insurance tends to make people less careful

about avoiding injuries or illness, due to the fact they know they
have insurance to cover medical costs.

Morale hazard:

Moral hazard is a situation in which one party gets involved in a risky event knowing that it is
protected against the risk and the other party will incur the cost. It arises when both the parties
have incomplete information about each other.

Insurance industry is considered as Morale Hazard:

Insurance companies protects their clients from risks (like fire, or car accidents) might
encourage those clients to behave in riskier ways (like smoking in bed or not wearing seatbelts).
This problem may inefficiently discourage those companies from protecting their clients as
much as the clients would like to be protected. If insurance companies could perfectly observe
the actions of their clients, they could deny coverage to clients choosing risky actions (like
smoking in bed or not wearing seat belts), allowing them to provide thorough protection
against risk (fire or accidents) without encouraging risky behavior.

However, since insurance companies cannot perfectly observe their clients' actions, they are
discouraged from providing the amount of protection that would be provided in a world with
perfect information. In insurance markets, moral hazard occurs when the behavior of the
insured party changes in a way that raises costs for the insurer since the insured party no longer
bears the full costs of that behavior. Because individuals no longer bear the cost of medical
services, they have an added incentive to ask for pricier and more elaborate medical service,
which would otherwise not be necessary. In those instances, individuals have an incentive to
over consume, simply because they no longer bear the full cost of medical services.Two types
of behavior can change. One type is the risky behavior itself, resulting in a before the
event moral hazard. Insured parties then behave in a more risky manner, resulting in more
negative consequences that the insurer must pay for.