What is required for an insured to guard against moral hazard and prevent wagering on insurance?

To successfully guard against moral hazard and prevent wagering on insurance, insurable interest is a fundamental requirement. Insurable interest refers to the financial stake or legitimate interest that an individual or entity must have in the preservation of the insured item or person. This principle is crucial because it ensures that the insured party would suffer a financial loss if a covered event occurs, thus aligning their interests with the insurance contract.

When insurable interest exists, it discourages individuals from engaging in morally hazardous behavior, such as intentionally causing damage to property or creating a loss because they stand to gain from an insurance payout without any real risk. Without this condition, insurance could effectively become another form of gambling, where a person might take out a policy on an item they don't own or have any vested interest in, thereby encouraging unethical conduct.

The other options address different aspects of insurance but do not specifically relate to the prevention of wagering or moral hazard. For example, insurance coverage is the protection provided under an insurance policy, while policy confirmation confirms that the coverage is in effect. Financial asset assessment involves evaluating the value of assets but does not inherently prevent moral hazard. Therefore, insurable interest is the critical element needed to maintain the integrity of the insurance system.