4. The Insurance Cycle Flashcards
Describe price elasticity of demand
The responsiveness of quantity demanded to a change in price.
Why do insurers join the market?
They think there is greater demand than there is supply (there is under-supply) and therefore the opportunity for profit.
Why do insurers leave the market?
Large losses leading to low or no profit.
What is a hard market?
Excess of demand leading to higher rates and more profit.
What is a soft market?
Excess of supply leading to lower rates and less profit.
What are two reasons the insurance cycle might vary?
Legal and political influences
Impact of major events
Why might legal and political matters influence the insurance market? (3 reasons)
Law can make insurances compulsory.
Law can extend liabilities for which insureds can be responsible - even during a policy
Market may be able to write in more or fewer geographies
Why might major events influence the insurance market?
Large events shorten the insurance cycle by reducing the number of players in the market following large losses.
