Chapter Four Flashcards
Insurance Cycle
What is the principle of supply and demand?
The principle of supply and demand describes the relationship between the price of a commodity and the quantity traded, aiming for an equilibrium where quantity supplied equals quantity demanded.
What is the impact of major events on the insurance cycle?
Major events such as natural disasters can harden the insurance cycle by reducing the number of insurers in the market and leading to increased premiums.
What distinguishes necessities from luxuries in terms of demand?
Necessities tend to have less elastic demand, meaning price changes have a smaller impact on their purchase compared to luxuries.
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 the concept of price elasticity relate to demand?
Price elasticity measures how much demand changes in response to price changes; if demand decreases significantly with a price increase the product is considered elastic.
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 role do legal and political influences play in the insurance market?
Legal and political changes can affect the types of insurance that are compulsory, thus impacting demand and the overall insurance cycle.
What is meant by equilibrium in the context of supply and demand?
Equilibrium refers to the ideal balance where the quantity supplied matches the quantity demanded, resulting in a stable market.
What can influence supply and demand in a market place?
Factors such as historical data, current information, competitive pricing and exclusivity of products can influence supply and demand.
