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

A large Indian private life insurer sells term plans mainly through bank branches. Over two years, three new online-only insurers enter the market with low-cost term products and simple digital onboarding. In Porter's Five Forces framework, which force has most directly intensified for the incumbent?

The threat of new entrants has intensified. Three online-only insurers have entered with cheap term products and easy digital onboarding, which lowers barriers to entry and puts pressure on the incumbent's market share and pricing. The other forces are not the ones changed by this scenario.

  1. AThreat of new entrantsCorrect
  2. BBargaining power of suppliers
  3. CBargaining power of buyers only through regulation
  4. DThreat of substitutes arising from a change in tax law
  5. Rivalry caused by exit barriers

Explanation

New firms entering the market with low-cost digital products is the classic sign of a rising threat of new entrants. Nothing in the scenario concerns suppliers, tax-driven substitution or exit barriers, so those options do not describe the change described.

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