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Risk Management (WU) > Producer theory > Flashcards

Producer theory Flashcards

1
Q

Factors of production

A

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

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2
Q

Transformation

A

production factor combination

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3
Q

Products

A

Outputs

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4
Q

Factor price

A

The price for inputs on the market

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5
Q

Whare the three ways of classifying production factors

A
  • Real tangible goods
  • Real intangible goods
  • Nominal goods
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6
Q

Real tangible goods

A

Machines, buildings ….

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7
Q

Real intangible goods

A

Work performance, services ….

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8
Q

Nominal goods

A

Money

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9
Q

Classification of where production factors come from (2)

A
  • Ordinary/primary production factors - bought from the market. Eg standardised software
  • Derivative (secondary) production factors - produced by the business eg individual software
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10
Q

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

A
  • Potential: Used for a longer period of time

- Consumption factors: used once and then it is gone

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11
Q

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

A
  • General production factors: Contribute the production of more than one good
  • Special production factors: contribute to the production of only one product and outputs
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12
Q

Production function

A

Shows the quantitative connection between production factors and outputs

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13
Q

What does a normal production function look like

A

output =f(input)

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14
Q

What does an inverse production function look like

A

Input = f(output)

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15
Q

Limitational production function

A

Requires a set number of specific inputs to produce an output

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16
Q

Substitutional production function

A

Outputs can be produced with different quantities of inputs

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17
Q

What type of production function do services have?

A

Inverse

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18
Q

What are the 3 areas of business in an insurance company

A

Insurance business, capital investment, other businesses

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19
Q

What are the 3 areas of the insurance business

A

Risk business, Savings and dissaving business and service business

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20
Q

Risk business

A

The core business of balancing risks

21
Q

Savings and dissaving business

A

Pensions and annuities

22
Q

Services business

A

Consulting, risk management, sales processing, claims settling

23
Q

Capital investment business

A

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

24
Q

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

A
  • 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
25
Q

Other businesses

A

Financial services, consulting, data processing….

26
Q

What is the output of the insurance industry

A

Insurance protection

27
Q

How does insurance protection differ from indemnity

A

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.

28
Q

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

A
  • Intangible
  • Cant be stored
  • Unique to each customer
29
Q

What are the 6 production factors of the insurance

A
  • Money for indemnity
  • Reinsurance
  • Contracts concluded
  • Infromation
  • External factors
  • Utilisation of capital
30
Q

What are the 2.5 derivative or secondary inputs insurance

A

Contracts concluded, information, utilisation of capital

31
Q

Money for indemnity

A

The money used to pay claims

32
Q

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

A

Nominal - paid out in cash

33
Q

Money for indemnity: classification in terms of utilisation)

A

Consumption factor - when its gone its gone

34
Q

Utilisation of capital

A

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

35
Q

The utilisation of capital: classification in terms of utilisation

A

Potential factor - because this is not safety capital

36
Q

Reinsurance: classification in terms of utilisation

A

Potential factor because it is usually held on to

37
Q

why are Contracts concluded needed

A

A large number of contracts are needed for risk balancing process

38
Q

Contracts concluded: classification in terms of utilisation

A

Potential factor because they are used for risk balancing

39
Q

How can insurers get more contracts concluded

A

Mergers and acquisitions

40
Q

External factor

A

Input from the insured is necessary to produce insurance

41
Q

Stochastic

A

Measurable on a probability distribution

42
Q

Stochastic production in insurance

A

The amount of money for indemnities is Stochastic

43
Q

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

A

Reinsurance and retention/money for indemnities

44
Q

What is the insurers objective

A

Profit

45
Q

When will substitution of safety and reinsurance continue until

A

The point where the marginal utility = the marginal disutility

46
Q

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

A

solvency requirements

47
Q

If reinsurance is taken what decreases

A
  • Premuim of own acconts
  • Losses from damage insured to own account
  • Reserve requirements as reinsurance does not require reserves.
48
Q

Surplus relief contract

A

Designed to control the primary insurers solvency

49
Q

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

A

High quota reinsurance

Risk Management (WU) (10 decks)

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