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.