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IAI Actuarial Core Principles · Business Management · Communicating strategy; culture and structure in decision making; strategy case studies

A case study describes an Indian health insurer that wins market share by offering lower premiums than rivals, while its claims costs and administration costs are similar to theirs. Within two years its profits collapse. Which analysis best explains the outcome in strategic terms?

The insurer had no sustainable competitive advantage. It cut premiums while its claims and administration costs matched rivals, so margins shrank. Price leadership works only when backed by lower costs, so market share gained this way eroded profit instead of protecting it.

  1. AIts competitive advantage was not sustainable because price cutting without a cost advantage erodes marginsCorrect
  2. BLower premiums always create lasting competitive advantage
  3. CThe firm's culture was irrelevant and the profit fall was random
  4. DRivals could not respond to the price cut
  5. The collapse proves market share is unrelated to profit

Explanation

Competing on price is sustainable only with a cost advantage. Here costs matched rivals, so lower premiums reduced margins. Share gains did not offset this. The other options contradict the facts or make unsupported absolute claims.

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