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

Policyholders of an Indian health insurer can compare premiums and claim-settlement ratios on an aggregator website and switch insurers at renewal at no cost. Which combination of Porter's forces is most clearly affected, and in which direction?

Buyer power rises. Aggregators make prices and claim records transparent and switching at renewal costs nothing, so customers can easily move to a cheaper or better insurer. That forces the insurer to compete harder on price and service.

  1. ABuyer power rises because of low switching costs and price transparencyCorrect
  2. BSupplier power rises because of low switching costs
  3. CThreat of new entrants falls because comparison is easy
  4. DThreat of substitutes falls because comparison is easy
  5. Buyer power falls because information is widely available

Explanation

Buyer power rises when customers are informed, price-sensitive and face low switching costs. Aggregators supply comparison information and portability, so customers can push insurers on price and service. The other options reverse the effect or name the wrong force.

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