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

A life insurer in India has a claims settlement process that is faster than any rival's. Rivals could copy the software, but the speed actually depends on years of accumulated staff know-how, integrated data systems and a culture of cross-team cooperation that cannot easily be observed or bought. According to the resource-based view of strategy, why is this most likely to provide a sustainable competitive advantage?

The advantage is sustainable because the claims capability is valuable, rare and hard for competitors to imitate. Under the resource-based view, tacit know-how, integrated data systems and organisational culture cannot easily be observed or bought, so rivals cannot simply replicate the speed by copying the software.

  1. ABecause the capability is valuable, rare and difficult for competitors to imitateCorrect
  2. BBecause the insurer's market share is the largest in the industry
  3. CBecause faster claims always allow the insurer to charge higher premiums
  4. DBecause the software it uses is protected by regulation
  5. Because customers face high switching costs when they leave the insurer

Explanation

The resource-based view says advantage is sustained by resources and capabilities that are valuable, rare, inimitable and organised for exploitation. Here the know-how, data integration and culture are hard to copy. The scenario does not mention regulation, market share or switching costs.

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