CII London Market (LM2) – Insurance Principles and Practices Practice Test 2025: The All-in-One Guide to Exam Success!

A common outcome of insufficient market capacity is an increase in premiums due to limited underwriting. When the available capacity in the insurance market is reduced, insurers face challenges in covering potential risks. As a result, the limited underwriting capacity may lead insurers to raise premiums to manage their exposure more effectively. This adjustment reflects the basic economic principle of supply and demand, where reduced capacity creates a scarcity in the availability of insurance coverage, thereby prompting insurers to increase costs.

Insufficient market capacity often signifies that there may not be enough insurers willing or able to provide coverage for certain risks, which in turn drives up prices as existing insurers strive to maintain financial stability in the face of higher potential losses or claims.