Because of the information asymmetry between the insurer and the insured, moral hazard occurs. However, it has long time been blamed on the party concerned' s moral problem, neglecting how it forms and the inter-discipline analysis of its prevention mechanism basing on combining economics and law. The person concerned in the insurance contract is deemed economically rational. After taking a fully consideration of the cost and benefit, the person makes decision. The moral hazard is possibly triggered when the person thinks he can get more benefit than cost.. One game between insurer and applicant will result in Nash Equilibrium, which couldn't stipulate moral hazard effectively. Only suffering constant repeated games, is that possible to amend the applicant's moral hazard achieving Pareto Optimality. Throuth establishing the economic model, I find the duty of disclosure, the duty to mitigation the damage, insurance fraud and other clauses in the law of insurance can't achieve stipulating moral hazard. Only plenty of external punishment mechanism intervene, improving the insurance's behavior costs that are higher than the earnings, can it achieve the purpose of correcting applicant's moral hazard. Therefore, only if a sufficient external punishment mechanism is introduced, the cost of the misbehavior of the parties concerned in the contract is raised, which is more than their benefits, can the moral hazard of both the insured and insurer be corrected. The moral hazard has betrayed the basic principle of insurance law, the principle of utmost good faith. So the regulation of the moral hazard from the insurance law will defend the root of the principle.
