A PRESENTATION ON
Porter’s Analysis on Insurance Sector
INTRODUCTION Insurance pays a major role in
different perspective. Life insurance is also now being
regarded as a versatile financial planning tool in India.
Life insurance industry is growing at the rate of 68% respectively.
LIFE INSURANCE India is the fifth-largest life insurance market
in Asia and eleventh in the world. 80% of Indian population is without life
insurance cover This part of the population has weak social
security and pension systems with hardly any old age income security
RELIANCE INSURANCE It is a part of Reliance Capiltal Ltd. Of
Reliance Anil Dhirubhai Ambani Group. VISION: To be the dominant new player in the
insurance industry.This will be achieved through:1. Recruitment of quality advisories2. Intensive product training3. Selling skill training
MAJOR PLAYERS IN INDIA Life insurance company of India (LIC) ICICI prudential HDFC Standard Max New York Birla Sun AllianzBajaj Aviva Sahara Tata AIG OM Kotak Mahindra
market share
LICICICIALLIANZ BAJAJSBI LIFE
STRATEGIC MANAGEMENT: PORTER’S FIVE FORCES
Potential new entrants
Bargaining power of buyers
Bargaining power of suppliers
Threat of substitute products
Rivalry among competitors
Beware
5 FORCES ANALYSIS OF INSURANCE SECTOR XXXXXX
Barriers to entryFDI ceilingCapital requirement
Threat of substitute productsGovernment Pension SchemeTax Saving InstrumentsDependence on Children in Rural India
The intensity of competitive rivalry Industry concentration on life and non-life businessLow penetration of insurance
5 FORCES ANALYSIS OF INSURANCE SECTOR XXXXBargaining power of buyer
◦ Widening product range ◦ Large corporate clients◦ Sale of Bancassurance ◦ Multiple distribution channels
Bargaining power of supplier◦ Limited actuaries in the market◦ Reinsurance concentration◦ Dependence on IT providers
THREATS OF NEW ENTRANTS High economies of scale, High capital requirements High government and legal barriers. High profitability Demographics Shift to greater personal responsibilities
for individuals Improved understanding of insurances Better regulatory framework for the life
insurance
BARRIERS OF ENTRY Intellectual property rights Capital requirements Cost advantages Brand equity Expected retaliation of equipments Government policies
BARRIERS FOR ENTRY & EXIT
Low., stable returns
Low, risky returns
High, stable returns
High, risky returns
EN
TR
Y
BA
RR
IER
SEXIT BARRIERS
low
high
low high
THREAT FOR SUBSTITUTES Government Pension Scheme Tax Saving Instruments Emerging Substitutes Dependence on Children in Rural India
SUBSTITUTES
JEEVAN ASTHA (LIC), UNIT PLUS (SBI LIFE), NEW CAPITAL GAIN (BAJAJ ALLIANZ) etc.
DETERMINANTS OF BUYER POWER Number of buyers related to sellers Product differentiation High price sensitivity Switching costs to use other products Buyers’ profit margin Buyers’ use of multiple sources
Buyers’ set of backward integration Sellers’ set of forward integration Importance of product to the buyer Buyers’ volumeLimited Actuaries in the
Market Reinsurance Concentration Cession to the National Insurer Dependence on IT Providers
Cont…….
BARGAINING POWER OF SUPPLIERS Supplier concentration low price sensitivity Availability of substitute inputs Importance of suppliers’ input to buyer Suppliers’ product differentiation Importance of industry to suppliers Buyers’ switching cost to other inputs Suppliers’ threat of forward integration Buyers’ set of backward integration
RIVALRY AMONG EXISTING FIRMS Number of competitors (concentration) Relative size of the competitors
(balance) Industry growth rate Product differentiation Capacity augmented to large
increments Buyers’ switching costs Diversity of the competitors Exit barriers Strategic stakes
PORTER’S 5 FORCES
Overall industry rating:Unfavorable (high)
Moderate
Favorable (low)
Threat of new entrants.
Bargaining power of buyers. X
Threat of substitutes.
Bargaining power of suppliers.
Intensity of rivalry among competitors.
X
X
X
X
A segment like insurance sector is very attractive because it is in the growing stage of its life cycle. So, there are lots of aggressive competitors. As the number of competitors are less at this time which makes this industry most attractive for new players. There is not much threat for the existing players from the new entrants because entry barrier is high for foreign companies, because of restriction imposed by government. When we consider substitute products this segment is unattractive because there are many actual and potential substitutes. If new product is brought it becomes obsolete as every competitor copies it very soon with added features. Here Service point of view matters rather than the products. Buyers have great bargaining power in this segment because there are many competitors to provide similar products at cheaper prices. This is what makes this industry more competitive in terms of products and services.