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

A mid-sized Indian health insurer decides to compete by offering the lowest premiums in the market. It achieves this by running a very lean cost structure, using standardised products, digital-only servicing and bulk purchasing of hospital services. Using Porter's generic strategies, which strategy is it pursuing?

The insurer is following a cost leadership strategy. It wins customers by offering the lowest price, and it sustains this through a lean cost structure, standardised products, digital-only servicing and bulk purchasing, rather than by offering unique features or targeting a narrow segment.

  1. ACost leadershipCorrect
  2. BDifferentiation
  3. CFocus based on differentiation
  4. DDiversification into unrelated businesses
  5. Vertical integration

Explanation

Competing on the lowest price supported by a lean cost base, standardisation and bulk purchasing is cost leadership. Differentiation would rely on unique features valued by customers, which is not described. Focus would require a narrow target segment, which is not stated.

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