Chapter 4 - The insurance cycle Flashcards
What is supply and demand?
Relationship between the price of the commodity and quantity traded?
What is the ideal balance between quantity supplied and quantity demanded?
Equilibrium - just enough supply to meet demand
How do you manage supply and demand?
Historic info - weather trends
Current info - sporting fixtures
Competitive pricing - size of business to balance out gains/losses
Exclusivity of product - distance willing to travel
What is high order service?
Willing to travel
Large sphere of influence
e.g., Harrods
What is low order service?
Not willing to travel
Low sphere of influence
e.g., corner shop
Does the price of an item have an impact on demand if it is compulsory?
No - its a necessity rather than luxury
What is price elasticity?
Working out how much the price increases and the demand decreases
What is under supply?
Not enough supply to meet demand
What is over supply?
More than enough supply to meet demand
When do new insurers join the market?
If they think there is greater demand than supply i.e., under supply
What is a soft market?
When new insurers enter the market to increase capacity and prices are forced down
More supply than demand so aggressive pricing
What is a hard market?
When there are losses/low profits, insurers leave to reduce capacity and prices are high so profits can be made
Why might the insurance cycle vary?
Legal and political influence - change in compulsory insurance, change in law impacts liabilities, ability to write business in certain parts of the world
Impact of major events - e.g., World Trade Centre 2001, leave the market in certain classes, shorten the insurance cycle (supply is less so premiums go up)
