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

An actuary advising a private health insurer in India is asked to assess the threat of new entrants. Which finding would most strongly indicate that this threat is LOW?

The threat of new entrants is low when entry barriers are high, such as heavy regulatory capital requirements and established hospital networks. These make entry costly and slow. Easy switching, easy imitation and cheap technology lower barriers, while excess capacity and price cutting concern existing rivalry.

  1. ACustomers can switch insurers at no cost and with no documentation
  2. BRegulatory capital requirements are heavy and distribution depends on long-established hospital networksCorrect
  3. CProduct features are easily copied within weeks of launch
  4. DExisting insurers hold large unused capacity and are cutting prices
  5. Technology platforms for policy administration are cheap and freely available

Explanation

High capital needs and entrenched networks are barriers to entry, so new entrants find it hard to compete. The other options describe low switching costs, easy imitation or cheap technology, which make entry easier, or describe rivalry rather than entry barriers.

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