Name: Nazeerah dadabhai
Student number: 559575
Subject: insurance & risikomanagement III
Lecturer: Pholile dladla
Assignment: prevent 2
Due date: 25 Apr 2014
Insurance, specifically corporate and business insurance continues to be active in the late 1600's. Traditionally corporate and business insurance utilized to limit the impact of risk (financial instability) on shareholders and stakeholders. While time extended economists and insurance analyst began to appreciate that insurance can be used end up being used as a strategic application in increasing profits as it may manipulate the behaviour of price and output. The focal point of the essay is definitely the way in which the strategic behavior of a organization can affect the complete market framework (demand, end result and price) and how different firms from this structure respond.
The traditional factors that play a part in the getting on corporate and business insurance The first and foremost aspect is limiting the risk of financial instability about shareholders. This factor was fundamental intended for the getting corporate insurance. As period passed investors began to shift their stock portfolio and in that way they decreased their risk, thus their particular behaviour to risk started to neutralise. The second factor is definitely the principle agent problem that naturally occurs between managers and stakeholders. Insurance allows for managers to get monitored, to ensure that certain focuses on are being reached, making certain through contractual agreements and warranties. As a result by managers reaching rear doors corporate revenue increase and managers must keep getting their focus on through a manager-remuneration program. Studies have shown that a lot of companies want to be fully insured and, personnel reported that there will be a rise in net earnings for the short term that follows the cancelling of insurance but in the long run profits will decrease due to the foreseen hazards occurring. Businesses like any additional business entity are revenue driven, as a result a reduction in duty liability, a decrease in the expected financial costs of personal bankruptcy, the anticipated present benefit of long term cash moves and less expensive premiums on offer because of underwriting cycles. These kinds of third, next, fifth and final factors make insurance very attractive to profit powered companies.
Oligopolistic markets and the interdependency among firms from this market composition Companies like individual are used to making selections every day. The choices that are made by companies are of a more ideal nature, as companies constitute the pillars of the economic marketplace structure. This market structure in most industries can be an oligopolistic market framework and will be the structure reviewed in this dissertation. An oligopoly is characterized by the next: 1 . Couple of large organizations compete by selling standardised or perhaps slightly differentiated products (products are ideal substitutes), installment payments on your Entry in to the market is challenging as there are a large number of barriers, three or more. A firm has limited control of product selling price as, four. Firms will be interdependent (exceptions to this is usually when businesses collude).
These types of characteristics control the way organizations in an oligopoly behave. The most crucial characteristic is a interdependency among firms. Interdependency doesn't permit a firm decisions to be manufactured in isolation, somewhat every decision made by one particular firm impacts all the other business's decisions, all their position on the market and in fact the entire marketplace structure. Idea can obviously be seen when one firm increases all their output, as a result lowering their particular product value. The various other firms on the market will now be selling their very own product in a higher price as compared to first firm. Consumers desires the lowest likely price to increase their utility thus all their demand for the item will change. The result of this is that, consumers changes to buying the lowest priced product or they are going to substitute the whole product group for another merchandise group. Organizations faced with this issue of not knowing their...