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

A Mumbai-based life insurer maps its activities from product design to claims settlement. Management classifies underwriting, policy administration and claims handling as the activities that directly create and deliver the policy to customers, while HR, IT infrastructure and finance support them. Which description best matches the role of the first group in the industry value chain framework?

Underwriting, policy administration and claims handling are primary activities because they directly create and deliver the insurance product to the customer. HR, IT and finance are support activities that enable them, so the support-activity description is wrong for this group.

  1. AThey are primary activities, which directly create and deliver the product or serviceCorrect
  2. BThey are support activities, because they do not generate revenue directly
  3. CThey are barriers to entry, because they require regulatory approval
  4. DThey are substitutes, because customers could buy them elsewhere
  5. They are external stakeholders, because they sit outside the insurer

Explanation

In value chain analysis, primary activities are those directly involved in creating, selling and delivering the product or service. Underwriting, administration and claims fit this. HR, IT and finance are support activities that enable the primary ones.

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