C4 Flashcards
Equilibrium
Where supply meets demand
Historic information
Insurers can look at previous trading patterns in particular areas of insurance
Current information
What competitors are pricing premiums
Exclusivity of product
Availability and difference between suppliers. Is the service offered a high order or low order service
Necessities vs luxuries
Necessity if compulsory cover and its demand is less sensitive to price changes
PED
How much demand goes down if the price goes up and helps predict how changes in premiums might affect consumer behaviour
Insurance market cycle
Higher premiums
Higher profits
Increase capacity
More insurers join market
Lower premiums
Lower profits
Capacity withdrawn
Insurers exit market
What is a hard market
When there are higher premiums and an excess in damand over supply
What is a Soft market
When a market is saturated with competing insurers and collectively exceeding demand resulting in lower premiums and profits
What can effect the insurance cycle
Legal changes
Major events like 9/11 hurricanes and pandemics
Competitive pricing
Exclusivity of products
Reasons for Insurer Exit
Insurers may leave the market due to sustained losses or regulatory changes that make it unprofitable to operate, we typically see this in soft market conditions.
What is the insurance cycle
The insurance cycle refers to the fluctuations in the insurance market, characterised by periods of profitability followed by periods of losses. This cycle affects the entry and exit of insurers in the market, impacting pricing and coverage availability.
Impacts of major events
Major events, such as natural disasters or economic crises, can disrupt the insurance market by causing significant losses. These events often lead to rapid changes in supply and demand, affecting premiums and coverage.
What is a subscription market
A subscription market in insurance allows multiple insurers to share the risk of a single policy, increasing capacity and competition.
How does aggressive pricing affect the insurance market?
Aggressive pricing can lead to lower premiums, which may attract more customers but can also result in losses for insurers, prompting them to leave the market.
What happens when there is an under-supply in the insurance market?
When there is an under-supply, new insurers may enter the market, believing they can profit by increasing supply to meet demand.
How does aggressive pricing affect the insurance market?
Aggressive pricing can lead to lower premiums, which may attract more customers but can also result in losses for insurers, prompting them to leave the market.
