Chapter 4 - The insurance cycle Flashcards
What do you call it when supply = demand?
Equilibriun
Why is supply and demand relevant in insurance?
The quantity of capacity available will affect the price of insurance
How does a change in price affect necessary vs luxury insurance?
Probably not to necessary, but people would buy less luxury
What is the price elasticity of demand?
How much demand is affected by a change in price
When does under/over of supply happen?
under - not enough supply to meet demand
over - not enough demand to meet supply
What might an insurer join the market?
Demand greater than supply
= Prices are high opportunity to make money
Why might an insurer leave the market?
Large losses, meaning low / no profits
What impact do rates have on new market entrants / leavers
When insurers leave the market, demand may be higher than supply, increasing prices. This is a hard market, when insurers have more ability to influence price.
When insurers enter the market, supply may be higher than demand, lowering prices/increasing competition for business. This is a soft market, where insurers are competing on price for business.
What 2 things can influence the cycle?
Legal/political influences - change in regulation making more/less insurance compulsory.
Impact of major events - might give insurers have a lot of losses and accelerate market leavers/higher prices
What’s the difference between high/low order of service?
high order - large sphere of influence. only person offering product for a great distance
low order - small sphere of influence. lots of people offering your product nearby
