Hi to all here is my question,
If there is uncertainty, in which manner the supply of insurance policies will react (in number of policies issued by insurer) as compare to certain environment.
Kindly, help me with your's valuable suggestions.....................
Hi,
As far as Insurance is concerned there is a difference between uncertainty and risk.
Risk is an event where there outcomes are known but the probability of those outcomes vary.
In the case of uncertainty the outcome themselves are unknown.
Now, Insurance will deal with risk. Where it can take a shot at the probabilities of the outcomes and calculate the expected losses thereby arrive at actuarially fair premium.
If the outcome of the event cannot be mapped or even guessed, I am afraid the insurer will not be able to rate the risk.
Whenever a new policy is designed where the insurer has no previous experience data , some of the probable outcomes are not known. In such cases they would add a hurdle rate to their fair premium to cushion the unknown expected losses. ( That is an adventurous underwriter) . The number of policies is a function of the marketing appetite of the company
Thanks Reveenderan Sir
For interpreting the issue in clear language.
That is useful for me...............
No risk/uncertainty, no insurance. Some of such risk/uncertainty is insurable and the others are not.
Generally speaking, there is a potential demand (in his case for insurance), there should be always the relevant supply if seemingly profitable.
So the issue of the supply/insurance for some risk is whether the insured/buyers and suppliers/insurers have the common understanding of the future potential risk. If so, insurance premiums can be decided; otherwise, the market ay not exist.
Some risk is easily to be estimated while others are more difficult.
Hi Renu,
For natural catastrophe coverage, accumulation is important for how many policies a single insurer will underwrite: they don't want too much exposure from a single catastrophic event. So, the supply of policies is limited by geospatial criteria, and thus the latest accumulation tools for property insurance all have a geospatial component.
Economic policy uncertainty is considered a risk in which government policies and regulatory frameworks are undefined for the near future. This phenomenon may lead businesses and individuals to delay spending and investments because of uncertainty in the market.
The relationship between insurance policy supply and uncertainty should be inversely proportional. As uncertainty increases, the supply of insurance policies typically decreases. This is because higher uncertainty makes it more difficult for insurers to assess risk accurately, leading them to limit the number of policies they issue or raise premiums to mitigate potential losses. Conversely, when uncertainty is low, insurers are more confident in their risk assessments and are likely to supply more policies at competitive rates.
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