What is the insurance cycle?
Insurance cycle is a formula of boom and bust in the insurance industry in response to economic pressures and insured events. It is also known as the subscription cycle and can play an important role in the financial solvency of insurance companies, because it may have to be able to predict and drive the cycle to stay in business. Patterns in the insurance industry are a topic for economists because they can interact with a greater economy, given that insurance, securing and related services are a large segment of the economy. For example, health insurance in the United States generates significant economic activities.
At the beginning of the insurance cycle, the conditions are soft. Numerous companies are active in this industry and compete for customers, which maintains very low bonuses because companies must be able to undermine the competition. Since there are insured events, in particular the main disasters such as hurricanes, insurance companies are forced to perform a large paycheck of honor of their policies.
smaller companies that are insufficiently capitalized due to their low bonuses can move from business because they cannot afford to bear the burden of demands. Securing companies that included additional demands can also get into financial problems because they are suddenly obliged to correct more claims. This triggers a chain of events that lead the bust and contraction in the size of the insurance industry, causing an increase in premiums because there are fewer competitors. Insurance companies are also more cautious about risks after other companies have seen as a result of low premiums.
When industry is recovering, more companies will start offering insurance and existing companies can expand their product lines and bonuses for remaining competitive. This results in a return to the soft market, which sets an insurance cycle for other bust. It may take a decade or more to make the industry move a complete cycle andcan be strongly influenced by world events; For example, a number of natural disasters could speed up industrial contraction.
Scientists study the insurance cycle to look at the previous formulas and predict the future ones. Analysts working in the field are of direct interest in determining the current place in the insurance cycle so that they can advise companies about financial decisions. These predictions can be difficult because it is often difficult to identify financial cycles from the inside; Back look often allows people to see traces they missed at that time.