Supply of Insurance - Profit Expectations

[kayson1212]

Which one of the following statements about the supply and demand for insurance is true? Choose one answer.

A. A change in the supply of insurance has an effect only in softening markets.

B. High profit expectations tend to increase the supply of insurance.

C. The demand for mandatory insurance is more elastic than for many other products.

D. Alternative methods of risk financing reduce the demand for insurance.

Page 15.7 of the review notes state that:

"If it appears that acceptable profits can be earned in a market, existing insurers are encouraged to sell more insurance, more insurance companies enter the market, and the supply of insurance increases."

but the feedback from the quiz says:

"......High profit expectations are likely to decrease supply as insurer raise premiums."

This would imply that "acceptable profit expectations" increase supply but "high profit expectations" decrease supply.

Is this correct?

[jesusislord]

i know the answer is D. it is sorta confusing though. if supply increases then this leads to a soft market where profit decreases. a bad question imo.