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IAI Actuarial Core Principles · Business Management · Business and consumer needs, the industry value chain and competitive forces

A general insurer in India sells motor cover through a comparison website. Management notices that customers buying through it are highly price-sensitive and switch at renewal. From the perspective of the insurer's business needs, which response is most consistent with this behaviour?

The insurer should differentiate on claims service and add-ons while monitoring competitive pricing. Comparison sites raise buyer power and switching, so assuming loyalty or sharply raising renewal premiums would drive customers away, and abandoning the channel or no-claims discount would reduce competitiveness.

  1. AAssume loyalty and raise renewal premiums sharply
  2. BReduce data collection about policyholders
  3. CFocus on claims service quality and add-ons to differentiate beyond price, while monitoring pricing against competitorsCorrect
  4. DStop selling through the website entirely and rely only on branches
  5. Remove the no-claims discount

Explanation

Price-sensitive, switching customers mean buyer power is high. The insurer should compete on non-price value such as claims service while keeping prices competitive. Sharp renewal increases would accelerate switching, and withdrawing channels or the discount would discard value or lose customers.

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