Chapter 4 - The insurance cycle Flashcards

1
Q

What is supply and demand?

A

Relationship between the price of the commodity and quantity traded?

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2
Q

What is the ideal balance between quantity supplied and quantity demanded?

A

Equilibrium - just enough supply to meet demand

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3
Q

How do you manage supply and demand?

A

Historic info - weather trends

Current info - sporting fixtures

Competitive pricing - size of business to balance out gains/losses

Exclusivity of product - distance willing to travel

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4
Q

What is high order service?

A

Willing to travel

Large sphere of influence

e.g., Harrods

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5
Q

What is low order service?

A

Not willing to travel

Low sphere of influence

e.g., corner shop

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6
Q

Does the price of an item have an impact on demand if it is compulsory?

A

No - its a necessity rather than luxury

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7
Q

What is price elasticity?

A

Working out how much the price increases and the demand decreases

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8
Q

What is under supply?

A

Not enough supply to meet demand

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9
Q

What is over supply?

A

More than enough supply to meet demand

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10
Q

When do new insurers join the market?

A

If they think there is greater demand than supply i.e., under supply

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11
Q

What is a soft market?

A

When new insurers enter the market to increase capacity and prices are forced down

More supply than demand so aggressive pricing

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12
Q

What is a hard market?

A

When there are losses/low profits, insurers leave to reduce capacity and prices are high so profits can be made

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13
Q

Why might the insurance cycle vary?

A

Legal and political influence - change in compulsory insurance, change in law impacts liabilities, ability to write business in certain parts of the world

Impact of major events - e.g., World Trade Centre 2001, leave the market in certain classes, shorten the insurance cycle (supply is less so premiums go up)

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14
Q
A
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