4. Insurance Cycle

Question 1

Definition: Equilibrium

Answer 1

When there is just enough supply to meet demand

Question 2

Definition: Supply and demand

Answer 2

The relationship between the price of a commodity and the quantity traded

Question 3

Definition: Price elasticity of demand

Answer 3

The feature which determines how much demand decreases as the price increases

Question 4

Definition: Subscription market

Answer 4

A market which has no price control, and there are many insurers who can take shares of the same risk

Question 5

Definition: Insurance cycle

Answer 5

Soft market: There is less demand meaning prices are high, and higher profits can be made

New insurers come into the market, increasing capacity

Hard market: Prices are forced down as there is more supply than demand and aggressive pricing takes place

Lower profits (and losses) are made meaning insurers leave the market and capacity reduces

Question 6

What are the tools used to manage supply and demand

Answer 6

Historic information
Current information
Competitive pricing
Exclusivity of product

Question 7

Which factors affect the insurance cycle?

Answer 7

Legal and political influences
Impact of major events