LM1 Chapter 4 The insurance cycle Flashcards
What is the most likely impact on the market if a catastrophic loss is suffered?
Lower capacity and higher premiums
What is the relationship between supply and demand?
Is a Balance that applies equally to insurance as to any other product
How can the balance be impacted?
By the necessity or otherwise to buy insurance
Relationship with price and demand
Price has an impact on demand but an increase in price may not produce an equal change in the demand
How does supply and demand relate to the insurance market?
The market grows and shrinks in a cycle based on insurers seeing profits being made and wanting to join the market and share in those profits
What are factors that can impact the insurance cycle?
Weather and natural catastrophes
Changes in the law and major events
Why do new insurers join the market?
If they think there is a greater demand than there is current supply
Why do insurers leave the market?
That they suffer large losses, which leads to lower profits
What is supply and demand?
The relationship between the price of the commodity and the quantity traded
Relation to soft market within the insurance cycle
New insurers entering the cycle causes an increase in market capacity, prices are then forced down as more supply than demand leads to aggressive pricing
Relation to hard market within the insurance cycle
This aggressive pricing leads to losses made and insurers leave the market lowering capacity, prices and high and higher profits can be made
What are the three types of status that a product can be to describe the marketplace?
Equilibrium
Under-Supply
Over-Supply
