Porter’s Five Forces Analysis of Insurance Industry 

The insurance business focuses on safeguarding your financial and monetary assets and resources in case of loss for a particular amount of fee. The insurance company has the legal liability to pay the injured and damaged party for their losses. Today, we’ll discuss Porter’s five forces analysis of insurance industry; bargaining power of suppliers and buyers; threat of new entrants and substitutes; and intense rivalry as competitive forces in strategic management.

Insurance’s main types are as follows;

• Health insurance
• Gap insurance
• Vehicle insurance
• Governmental and closed community self-insurance
• Cyber Attack Insurance
• Credit insurance
• Burial insurance
• Life insurance
• Liability insurance
• Property insurance
• Casualty insurance
• Income protection insurance

Top rival companies in the insurance industry are as follows;

• Zurich Insurance
• Cigna
• AIG
• Ping An Insurance Group
• United Health Group
• Allianz
• AIA Group
• AXA Group
• China Life
• Met Life

Porter’s five forces analysis of insurance industry would analyze the bargaining power of suppliers and buyers; the threat of new entrants and substitutes; and intense rivalry as competitive forces in strategic management. Here’s the insurance industry Porter’s five forces analysis as follows;

Porter’s Five Forces Analysis of Insurance Industry 

Let’s discuss Porter’s five forces analysis of insurance industry as a competitive forces in strategic management; they’re as follows;

Bargaining Power of Suppliers in Insurance Industry

The bargaining of suppliers is High in the Insurance Industry as competitive forces in strategic management. Some of the main factors impacting the bargaining power of suppliers in the Insurance Industry Porter’s five forces analysis of financial business are as follows;

I-Limited Suppliers

Broking firms, brokers, agents, and financial institutions are the main suppliers in the insurance industry. They are very big and very few in the market and they hold a significant bargaining power over the insurance companies. In fact, the health and life insurance industry is completely reliant on them; insurance companies are one of their many clients.

II-Unique Service

The other reason they hold significant bargaining power over them is because they offer a unique service to the insurance companies. They take capital from the insurance companies, invest them in the other business, and give the profit return to the insurance firms. However, it is a form of unique service that only limited financial companies could offer.

III-High Switching Cost

Supplier switching in the insurance industry is very different from the suppliers in the retail industry. When an insurance company switches from one broking firm and financial institution to another; then it requires them a lot of paperwork; legalities and regulations, and fees and penalties.

Bargaining Power of Buyers in Insurance Industry

The bargaining of Buyers is Higher in the insurance business as competitive forces in strategic management. Some of the main factors impacting the bargaining power of suppliers in the insurance business five forces analysis of the financial industry are as follows;

I-Mass Volume of Buyers

There are many buyers and customers of insurance companies. They hold significant power over them because they are the main breadwinner of the company. Without their investment and annual insurance plan fees, the business of insurance companies can’t be sustained.

II-Price Sensitive

Insurance is a long-term contract between the customer and the insurance company. The customer commits to pay a significant amount of money over time, and the company promises to return the amount plus the markup profit on it. Usually, customers or clients are very cautious about the price and fees they have to pay to the company.

III-Low Switching Cost

If customers plan to switch from one insurance company to another, then they would have to give up on the markup profit. That’s why customers usually don’t switch from one firm to another in the middle of the contract.

Threat of New Entrants to Insurance Industry

The threat of new entrants is lower in the insurance business and financial service industry as competitive forces in strategic management. Some of the main factors impacting the threat of new entrants in the financial industry five forces analysis of insurance business are as follows;

I-Heavy Initial Investment

When it comes to launching an insurance company; then it requires a huge amount of capital investment and a significant number of clients and annual income to make a deal with broker firms and financial companies. That’s why small entrepreneurs can’t afford and manage to enter the insurance industry or build an insurance company.

II-Earning Licenses

 Along with the heavy initial investment, insurance company has to comply with the regulatory requirements and legalities of financial institutions. The regulations and legal costs make it more difficult to enter the insurance industry.

Threat of Substitutes to Insurance Industry

The threat of substitute products and brands is Moderate in the financial industry and insurance business as competitive forces in strategic management. Some of the main factors impacting the threat of new entrants in the financial business five forces analysis of insurance industry are as follows;

I-Switching Cost

If a customer plans to switch from one insurance company to another, then they would have to give up on the markup profit which is a huge amount. That’s why customers usually don’t switch from one firm to another in the middle of the contract; because they don’t want to lose profit.

II-Brand Loyalty

There are many insurance companies that have been operating their insurance business for decades. They have earned the trust and confidence of customers for years and generation after generation. Customers are loyal to them because they have had a good experience with them.

Competitive Rivalry in Insurance Industry

The competitive rivalry among financial businesses is very high in the insurance industry as a competitive forces in strategic management. Some of the main factors impacting competitive rivalry in the insurance business five forces analysis of the financial industry are as follows;

I-Tough Competition

The insurance industry has become highly competitive over the years. There are various insurance firms operating their business in the industry and they offer more or less similar types of service. They make it highly difficult for the new firm to sustain in the market in terms of earning clients and market share.

Conclusion: Porter’s Five Forces Analysis of Insurance Industry 

After an in-depth study of Porter’s five forces analysis of insurance industry; we have realized that insurance is the world’s most lucrative business. If you are learning about the insurance industry five forces analysis of financial business; then you should keep in mind the abovementioned bargaining power of suppliers and buyers; the threat of new entrants and substitutes; competitive rivalry.