Chapter 4 - The Insurance Cycle Flashcards Preview

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Flashcards in Chapter 4 - The Insurance Cycle Deck (14)
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Supply and demand

Relationship between price of the commodity and the quantity traded. Relies on luck, historical information and weather


Tools to manage supply and demand

- Historic information: trading patterns
- current information: sporting fixtures
- competitive pricing
- exclusivity of product


High order and low order service suppliers

High order service: London store exclusive. Large sphere of influence.

Low order service: local milk supplier . Low sphere of influence.


Shops have no control over...

Competition in local area

Data used for forecasting or decision making being accurate


Necessities vs Luxuries

Necessities: change in price will potentially have less impact on demand than if item is luxury

Insurance would not be a luxury as many compulsory


Price elasticity of demand

If price of product/service goes up demand goes down- elasticity is determining how much by.

Degree of elasticity is important
If you know demand will drop by more than 10% if you raise price by 10% it’s not worth it



Equilibrium- just enough supply to meet demand

Under-supply - not enough

Over-supply - more than enough


Why new insurers join the marketplace

If they think there is greater demand than current supply

Not in equilibrium because of under-supply

This can lead to an impact on price if insurers start to compete


Subscription market

Number of insurers within a market taking shares of the same risk depending on their appetite and capacity


Why insurers leave the market

Suffer large losses

Lower profits


Impact on rates of new market entrants and leavers

New insurers come into market increasing capacity

Prices are forced down as there is more supply than demand and aggressive pricing can take place

Losses are made or lower profits and insurers leave market reducing capacity

Prices are high and higher profits can be made


Hard market
Soft market

Hard market = excess of demand over supply. Insurers have more ability to influence rates due to less capacity

Soft market = excess of supply over demand. More difficult for insurers to push prices up.


Legal and political influences

- Law might be changed to make certain types of insurance compulsory

- Law might be changed to extend liabilities for which insurers can be found responsible

- Ability of market to write business in certain parts of the world might be increased


Impact of major events

Shortens the insurance cycle by accelerating reduction of players, significantly increasing premiums