Rivalry Among Existing Competitors

Rivalry Among Existing Competitors

In this section of the industry analysis we will discuss one of Porter’s 5 forces: rivalry among existing competitors. Rivalry occurs because one or more competitors either feels the pressure or sees the opportunity to improve position.(Porter, 1980) Tactics like price competition, advertising battles, and product introductions are some examples of ways rivals compete in many industries. During our research we discovered that competition in the insurance industry is high from different factors, such as company size advantages, strict regulations, differentiation, and pricing. From the information gathered we will understand why the level of intensity is high among existing competitors within the insurance industry.

About 130,000 insurance agencies and broker offices in the U.S. generate annual revenue of $85 billion. Large companies include Marsh & McLennan, Arthur J. Gallger and Anon. Despite the prominence of large companies in the commercial segment, the industry remains highly fragmented. The intensity of competition does not just arise between large firms. The largest 50 firms only hold 20 percent of the market. Demand is related to consumer income and the volume of commercial activity (Hoovers, 2007). Many individual agencies compete by effective marketing. For instance, large agencies have advantages in name recognition, connections with more insurers, and the ability to craft more complex insurance packages (Hoovers, 2007). Smaller companies compete successfully by operating in certain locations; where big name companies are less likely. In these locations they can focus on customer service and efficiency.

Industry competition is high especially in the health insurance industry. Diversity among competitors is low, which makes it difficult for each company to get a competitive advantage over one another. Diversity is low because health insurance companies are heavily regulated. There are strict regulations on how health insurance companies can structure themselves and what type of products they can or are required to offer (Helium.com, Tina Groat,2007). As a result many health insurance companies are stuck in a “competitive bubble”.

Another reason why the insurance industry is highly competitive is because there is no real big difference between one insurance company and another. As a result insurance has become more like a commodity, an area in which the insurance company with low cost structure, greater efficiency, and better customer service will