Study 3: Dynamics Of The Insurance Marketplace Flashcards
What is capacity defined as?
A) Amount of capital that individual insurers or entire markets make available for insuring risk
B) Amount of risk an insurer is allowed to sign
C) Maximum amount of money collected in premiums
D) Maximum number of customers allowed to appear on a policy
A) Amount of capital that individual insurers or entire markets make available for insuring risk
Capacity is the amount of capital that individual insurers or entire markets make available for ensuring risk.
What analyzes the way pricing is regulated?
A) Capacity
B) Bear market
C) Bull market
D) The theory of supply and demand
D) The theory of supply and demand
The theory of supply and demand analyzes the way pricing is regulated by balancing the amount of a product made available for purchase with the quantity required by consumers.
What term refers to the increase in claims costs from generous jury awards?
A) Bear market
B) Bull market
C) Social inflation
D) Capacity
C) Social inflation
Social inflation refers to the increase in claim costs resulting from generous jury awards, legislated benefit increases, and changing legal concepts of tort and negligence that benefit plaintiffs.
What type of market preforms well during economic downturns?
A) Bull market
B) Bond market
C) Bear market
D) Monopolistic market
B) Bond market
Bond markets, and particularly government bonds, generally perform well during economic downturns. For those who have them, this results in better investment portfolio returns.
When a company ceases to write new business and services only existing policies, this is known as what?
A) Rebranding
B) Marketing dislocation
C) Shifting priorities
D) Run-off
D) Run-off
Run-off is when a company ceases to write new business and only services existing policies.
What happens when consumers are forced to find a new insurer when their current insurer withdraws from the market?
A) Shifting priorities
B) Market dislocation
C) Run-off
D) Rebranding
B) Market dislocation
Market dislocation occurs when consumers are forced to find a new insurer when their current insurer decides to withdraw from the market after such consumers have come to rely on that insurer for the product.
What happens when there is excess financial capacity in the marketplace?
A) Soft market
B) Hard market
C) Run-off
D) Market dislocation
A) Soft market
Soft market conditions arise when there is excess financial capacity in the marketplace.
Which of the following triggers may cause a hard market?
A) Market dislocation
B) Shifting priorities
C) Limited market competition
D) Run-off
C) Limited market competition
Hard markets can arise when there is limited market competition increased government regulation on premium rates, and increased demand for a product that can be met by the insurers who actually sell it.
The Canadian P&C marketplace is influenced by individual companies and groups of companies. Which of the following do these entities control?
A) Capacity
B) Corporate structure
C) Regulatory bodies
D)Consumer relations
A) Capacity
These entities control new procurator offerings, capacity, rates (to some degree), and market consolidation in the form of mergers and acquisitions.
What makes up the largest share of the P&C insurance industry?
A) Property insurance
B) Automobile insurance
C) licensing
D) Life insurance
B) Automobile insurance
Automobile insurance forms the largest share of the P&C insurance industry.
Narrative: Explain how market cycles affect risk managers. (5 marks)
Market cycles’ effects on risk managers
Soft market- benefit from lower prices
1) Underwrite more easily and there are less demanding loss control requirements
2) Deliver risk protection more easily
3) Take the time to do serious risk management investigations
Hard market- more creative in offering options to deal with risks
4) Deal with stringent guidelines, making decisions more difficult
5) Explore alternative risk financing propositions (like reciprocal exchanges and other, less conventional means) to deal with risks, which is time consuming.
Narrative: Explain how market cycles affect consumers. (5 marks)
Market cycles’ effects on consumers
Soft market- consumers are neutral
1) Experience no change
2) Find insurance affordable
Hard market- consumers become frustrated when faced with unaffordable premiums and unavailable coverages
3) Are placed in awkward positions, when coverage is mandated by law but they cannot afford it
4) Complain to politicians
Narrative: Explain how market cycles affect government. (5 marks)
Market cycles’ effects on government
Soft market- government is neutral
1) Receives no complaints from consumers
Hard market- imposes measures on insurance
2) Implements government-backed protection plans that are advantageous to the insurance industry as well as to consumers
3) By capping losses to ensure that the insurer can survive a catastrophic loss
4) Participates in recovery initiatives if severe terrorist events were to occur
