What does the term "physical hazard" refer to in insurance practice?

In insurance practice, the term "physical hazard" specifically refers to any circumstance that increases the likelihood and probable severity of a loss. Physical hazards are tangible conditions or characteristics of a property that can lead to a higher risk of loss events, such as fire, theft, or damage. For instance, a steep driveway may pose a higher risk of accidents in icy conditions, or a building made of flammable materials might be at greater risk for fire damage.

Understanding how physical hazards affect risk is crucial for insurers when assessing policies and determining premiums, as these hazards directly impact the likelihood of claims being made. By identifying these risks, insurers can better manage their liabilities and offer appropriate coverage to policyholders.