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IAI Actuarial Core Principles · Business Management · Decision-making process, attitude to risk and competition

A mid-sized Indian life insurer is assessing the attractiveness of the term-insurance market using Porter's five forces. Several online aggregators now let customers compare premiums from a dozen insurers in minutes, and policies from different insurers are nearly identical in benefits. Which force has most clearly been strengthened by this development?

Buyer bargaining power has strengthened. Aggregators make price comparison easy and products are near-identical, so customers can switch at little cost and insurers are pushed to compete on price. This is a buyer-power effect rather than a change in suppliers, substitutes or entry barriers.

  1. ABargaining power of buyersCorrect
  2. BThreat of substitutes from non-insurance savings products
  3. CBargaining power of reinsurers as suppliers
  4. DBarriers to entry created by capital requirements
  5. Bargaining power of employees

Explanation

Easy price comparison and near-identical products lower buyers' switching costs and raise price sensitivity, which increases buyer power. The other forces are not directly altered by aggregators. Substitutes and supplier power relate to different aspects of the market.

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