Producer theory

Question 1

Factors of production

Answer 1

Inputs - an economic good used int eh production of another economic good

Question 2

Transformation

Answer 2

production factor combination

Question 3

Products

Answer 3

Outputs

Question 4

Factor price

Answer 4

The price for inputs on the market

Question 5

Whare the three ways of classifying production factors

Answer 5

• Real tangible goods
• Real intangible goods
• Nominal goods

Question 6

Real tangible goods

Answer 6

Machines, buildings ….

Question 7

Real intangible goods

Answer 7

Work performance, services ….

Question 8

Nominal goods

Answer 8

Money

Question 9

Classification of where production factors come from (2)

Answer 9

• Ordinary/primary production factors - bought from the market. Eg standardised software
• Derivative (secondary) production factors - produced by the business eg individual software

Question 10

Classification of production factors in the way of utilisation in the production process

Answer 10

• Potential: Used for a longer period of time

- Consumption factors: used once and then it is gone

Question 11

Classification of production factors in the scope of employment in the production process

Answer 11

• General production factors: Contribute the production of more than one good
• Special production factors: contribute to the production of only one product and outputs

Question 12

Production function

Answer 12

Shows the quantitative connection between production factors and outputs

Question 13

What does a normal production function look like

Answer 13

output =f(input)

Question 14

What does an inverse production function look like

Answer 14

Input = f(output)

Question 15

Limitational production function

Answer 15

Requires a set number of specific inputs to produce an output

Question 16

Substitutional production function

Answer 16

Outputs can be produced with different quantities of inputs

Question 17

What type of production function do services have?

Answer 17

Inverse

Question 18

What are the 3 areas of business in an insurance company

Answer 18

Insurance business, capital investment, other businesses

Question 19

What are the 3 areas of the insurance business

Answer 19

Risk business, Savings and dissaving business and service business

Question 20

Risk business

Answer 20

The core business of balancing risks

Question 21

Savings and dissaving business

Answer 21

Pensions and annuities

Question 22

Services business

Answer 22

Consulting, risk management, sales processing, claims settling

Question 23

Capital investment business

Answer 23

Lined to the insurance business because there are financial funds which have to be invested

Question 24

What are important considerations for the investment business in terms of weather to hold a risk reserve (3)

Answer 24

• Premiums can be invested as long as they don’t get used for claims settlements
• Risk reserves can be invested if they are not put into risk reserves
• Opportunity cost of risk reserves

Question 25

Other businesses

Answer 25

Financial services, consulting, data processing....

Question 26

What is the output of the insurance industry

Answer 26

Insurance protection

Question 27

How does insurance protection differ from indemnity

Answer 27

Indemnity happens when there is a loss, it may or may not happen. Protection is constantly produced. There is a temporal dimension to insurance protection that indemnity does not have.

Question 28

How is risk transfer different to the normal production function besides it being inverse (3)

Answer 28

- Intangible - Cant be stored - Unique to each customer

Question 29

What are the 6 production factors of the insurance

Answer 29

- Money for indemnity - Reinsurance - Contracts concluded - Infromation - External factors - Utilisation of capital

Question 30

What are the 2.5 derivative or secondary inputs insurance

Answer 30

Contracts concluded, information, utilisation of capital

Question 31

Money for indemnity

Answer 31

The money used to pay claims

Question 32

Money for indemnity: What type of good is this (nominal, tangible or intangible)

Answer 32

Nominal - paid out in cash

Question 33

Money for indemnity: classification in terms of utilisation)

Answer 33

Consumption factor - when its gone its gone

Question 34

Utilisation of capital

Answer 34

Store money and capital investments for the amount of the expectancy value of future payments and safety capital

Question 35

The utilisation of capital: classification in terms of utilisation

Answer 35

Potential factor - because this is not safety capital

Question 36

Reinsurance: classification in terms of utilisation

Answer 36

Potential factor because it is usually held on to

Question 37

why are Contracts concluded needed

Answer 37

A large number of contracts are needed for risk balancing process

Question 38

Contracts concluded: classification in terms of utilisation

Answer 38

Potential factor because they are used for risk balancing

Question 39

How can insurers get more contracts concluded

Answer 39

Mergers and acquisitions

Question 40

External factor

Answer 40

Input from the insured is necessary to produce insurance

Question 41

Stochastic

Answer 41

Measurable on a probability distribution

Question 42

Stochastic production in insurance

Answer 42

The amount of money for indemnities is Stochastic

Question 43

What are the 2 main variables that an insurer must choose between in production?

Answer 43

Reinsurance and retention/money for indemnities

Question 44

What is the insurers objective

Answer 44

Profit

Question 45

When will substitution of safety and reinsurance continue until

Answer 45

The point where the marginal utility = the marginal disutility

Question 46

What external factors will affect the rate of substitutions between retention and reinsurance

Answer 46

solvency requirements

Question 47

If reinsurance is taken what decreases

Answer 47

- Premuim of own acconts - Losses from damage insured to own account - Reserve requirements as reinsurance does not require reserves.

Question 48

Surplus relief contract

Answer 48

Designed to control the primary insurers solvency

Question 49

Where do we see surplus relief contracts commonly in what type of reinsurance

Answer 49

High quota reinsurance