The Insurance Cycle

Question 1

What is meant by supply and demand?

Answer 1

The relationship between price of commodity and the quantity traded. Ideal balance is quantity supplied = quality demanded which is called equilibrium.

Question 2

Tools to manage supply and demand

Answer 2

Historic and current info, competitive pricing and exclusivity of the product.

Question 3

Necessities vs Luxuries

Answer 3

Insurance is not generally a luxury as purchase can be obligatory or required as a term of business.

If a necessity price increase has less of an impact on demand as opposed for a luxury.

Question 4

Price elasticity of demand

Answer 4

Working out how much the demand goes down as the price goes up.

Question 5

Equilibrium, under-supply, over-supply

Answer 5

• Equilibrium: there is enough supply to meet demand
• Under-supply: not enough supply to meet demand
• Oversupply: more than enough supply to meet demand

Question 6

Hard market

Answer 6

A hard market is one where there is an excess of demand over supply and insurers can influence rates due to less capacity (a soft market is the opposite).

Question 7

Legal and political influences on the insurance cycle

Answer 7

• Law might change to make more or fewer insurance types compulsory.
• Law might change to extend liabilities for which insureds can be found responsible (every during currency of policy)
• Ability of market to write business in certain parts of the world might increase

Question 8

Impacts of major events on Insurance cycle

Answer 8

• 9/11 2001 and Gulf of Mexico hurricanes 2017 - two of the largest losses in the Insurance market and shorted the insurance cycle as supply is less
• COVID - Some Insurers no longer write contingency