An insurance company provides liability insurance to a restaurant protecting the owner against claims from customers.One area of coverage is protections against food poisoning claims.The insurance company may periodically send an employee into the restaurant to observe food preparation and food storage processes.The insurance company is trying to avoid:

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The insurance company is trying to avoid moral hazard, which is the risk that the restaurant owner may not take sufficient precautions against food poisoning because they are protected by insurance. By periodically observing the food preparation and storage processes, the insurance company can check if the restaurant owner is taking necessary precautions and encourage them to continue doing so. This ultimately reduces the risk of liability claims that the insurance company would have to pay.

An Insurance Company Provides Liability Insurance to a Restaurant Protecting