Chapter 4 - the insurance cycle

Question 1

What is supply and demand?

Answer 1

the relationship between the price of the commodity and the quantity traded, ideally want equlibrium

Question 2

What are some tools to manage supply and demand?

Answer 2

Historic information
Current information
Competitive pricing
Exclusivity of product

Question 3

What is the difference between high order and low order service?

Answer 3

High order - has a large sphere of influence, people will travel a long way for that one-off special purchase

Low order - low sphere of influence, people will not travel far to purchase it

Question 4

what do shops have little to no control over?

Answer 4

Competition
Data used for forecasting/decision-making being inaccurate

Question 5

Why do insurers join the market?

Answer 5

If they think they can make a profit due to current under-supply in the market, more demand than there is suppliers

Question 6

Why do insurers leave the market?

Answer 6

when they suffer large losses, leading to minimal or no profits
can also be enforced, e.g. market legislation changes and the insurer can no longer write the business they want to

Question 7

How do new entrants impact rates?

Answer 7

Prices are high and higher profits can be made, new insurers come into the market increasing capacity, prices are forced down as there is more supply than demand and aggressive pricing can take place, losses are made or just lower profits and insurers leave the market thus reducing capacity.
Creates a continuous loop

Question 8

Why might the insurance cycle vary?

Answer 8

Legal and political influences - e.g. more compulsory insurances, brexit

Impact of major events - e.g. World Trade Center loss in 2001 and 2005 and 2017 hurricanes in the Gulf of Mexico, Covid