The Five Competitive Forces That Shape Strategy – Insurance industry

Are Insurers familiar with The Five Competitive Forces That Shape Strategy:

This is a disruptive time for the insurance industry with pressure from capital and technology pressuring both ends.  If you review the HBR article by Porter about the Five Competitive Forces that Shape Strategy – you will wonder are Insurers familiar with The Five Competitive Forces That Shape Strategy?

 

If so, are they paying attention?

 

The dynamic between buyers, sellers, and competitors is quite complex.

 

However, Profitability is key.

 

If you aren’t familiar look at the diagram below.

Are Insurers familiar with The Five Competitive Forces That Shape Strategy

 

 

This exercise can be done from many parts of the value chain of the insurance industry – weather you are a retail broker, MGA, Carrier, Reinsurer or an InsurTech focused on distribution, risk bearer, etc.

 

A different analysis would be appropriate for each of the respective scenarios but these are important principles to think about.

 

If the Five forces holds true to the Insurance industry, many should be adjusting their business models to prepare for the market forces.

 

 

Threat of New Entrants

  • Barriers to Entry – high given state regulation and environment
  • Economies of Scale- depends on product
  • Brand loyalty- depends on product
  • Capital requirements – high
  • Distribution channels – high

 

Bargaining power of suppliers

  • Number of competitors – up
  • Diversity – up
  • Industry growth – slower
  • Brand loyalty – medium

 

Bargaining power of buyers

  • Number of customers – depends on sector
  • Differences between competitors – low/medium
  • Price sensitivity – high

 

Threat of substitute products

  • Perceived level of product differentiation
  • Buyer propensity to substitute
  • Switching costs

 

See also…Navigating the future of insurance and reinsurance

 

Some of the advantages that incubments have include their data, access to clients and customers, government and regulatory framework, brand loyalty, economies of scale and distribution, as well as track record and access to risk capital.

 

But the question remains: how long will these advantages last?

 

See also…Insurance incumbents don’t have the data advantage they claim

 

For those of you without MBA or business background, consider reading Harvard Business Review as it can be a very helpful resource.  It is a great resource found at local libraries, colleges and universities, & they also have videos online.

 

Watch Harvard Business Review Interview with Porter:

 

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