What is the relationship between a peril and a hazard?

The relationship between a peril and a hazard is clearly defined by the concept that a peril is an event or circumstance that can cause a loss, while a hazard is something that increases the likelihood or severity of that loss occurring due to a peril. In essence, a peril is the cause of the loss, such as fire, theft, or flood. On the other hand, a hazard represents conditions or situations that make the occurrence of the peril more likely or severe. For instance, a congested electrical system may be a hazard that increases the risk of a fire (the peril).

Understanding this relationship is crucial in underwriting and risk assessment since identifying hazards allows insurers to better evaluate the level of risk associated with particular perils. This delineation helps insurers create more accurate policies and premiums reflective of the true risk involved.