Rivalry in the Insurance Industry

Rivalry is one dominant form of the manifestation of competition in any industry. Rivalry among firms refers to all the actions taken by firms in the industry to impose their positions and gain advantage over each other.

Rivalry often manifests itself in price competition, advertisement battles, product positioning and product differentiation.

Generally speaking,  being rivals does not mean being enemies.  Competitive rivalry, if healthy, stimulates growth.  It forces companies to innovate and rationalize costs.  It necessitates research and creativity and makes orientation towards quality in products and services a must.  In this sense, it becomes a positive force.

On the other hand, rivalry can become unhealthy, and it can drive prices down and, therefore, profitability. It can create instability and negatively influences the industry making it unattractive.

Intense and unhealthy rivalry can be a result of different reasons. Drive for greater market share, a change in the dynamics of the industry or when a firm is under pressure to keep production at full capacity to cover fixed costs are among the common one.

The Ethiopian insurance industry, born again after the abolition of the command economy, is a decade and seven years old.  However, it is not yet matured; the competition and rivalry in the industry in most cases is manifested in an unethical manner.  Over the last 17 years, the pricing strategy of the competitors has mostly been negative.  It has been characterized by rate under-cutting to the extent that has gone far beyond and below the economic rate to cover even the direct costs of claims and underwriting affecting profitability.  As a result, getting reinsurance coverage in some instances has already become a challenge for the industry.  The situation becomes worrisome when the risks are of mega proportions whose materialization may wipe-out not only the concerned firm but the image of the industry.

The rivalry in the industry is also visible in the advertising battle field. In this regard, the engagement of most of the companies, haven’t been as such to the detriment of the healthy growth of the firms as is the fight in pricing.  Although the industry has not yet set and met ethical standards, the battle in advertising among existing competitors has not so far created negative image about the industry.

But still, if there is an area where firms can exercise the principle of civilized competition and cooperation, it is in engaging the media to promote and popularize the valuable services of the industry. Yet not much has been done in the area.

Product positioning is the battle for the mind of the target market. It involves deciding where the product should be positioned in the market. In the Ethiopian insurance industry the traditional products in both Life and Non-Life kind are transacted. Unlike other products in non-insurance industries, insurance products are sold without much positioning. Therefore the rivalry in the industry is not stiff when it comes to product poisoning. If we take the auto industry, for instance, the manifestation of the rivalry in this regard would be quite obvious.  Porsche, for example, is positioned in the prestige segment of the car market, with a differential advantage based on performance.  The example can be extended to the Airline industry where positioning takes form of executive class and low-cost airlines.

In the future, the dynamism in the industry may definitely bring about an importance of positioning earlier than expected.  If we closely and critically look at the vision statements of some firms in the country, we may see clear orientation towards positioning itself in ‘Quality’ services.

The other strand in which the rivalry manifests itself is product differentiation.  It is about the extent to which the uniqueness of a product (in our case service) is perceived by the buyers.  The perception created about it in the public (the target market in particular) could be as a result of the physical attributes of the product or because of the effectiveness of the advertising campaign.

Critical and objective analysis of the industry situation in this respect brings to the surface the fact that the actors haven’t done much to differentiate their products/services.

Interms of brand loyalty, existing firms have made some progress but will have to cover additional ground  to serve as a differentiation or unique feature only attached to their firms individual products.

Lack of differentiation, on the other hand, encourages buyers to treat the products or services as commodities and shop for the best price which brings about down-ward pressure on prices and profitability.  This will have a destabilizing effect gradually, as some firms are, as being evident, willing to adopt a disproportionate pricing strategy than differentiation and accept unreasonably low profit margin to expand their market shares and hold dominant positions.

This practice has been a widely dominant feature of the competition in the industry at the expense of service quality.  Other mal-practices too like relaxing the terms and conditions and intentional slicing of the scope of cover of the policies instead of adding attributes to it is being a common phenomenon eroding in effect good practices in the industry.