Post 8: What are the sources of competitive advantage for life insurers?
They are and can be various sources of competitive advantage:
• Distribution strength: The traditional way to sell life insurance has been through a partner who has an existing relationship with potential customers. Access to large customer segments, geographies, income profiles, etc. is a key differentiator if it can be efficiently leveraged. Most insurers have well defined channels to solicit new business and service customers. While strategies for each channel may evolve over time, being able to access a large distribution network will remain a source of strategic advantage.
• Products: This is more nuanced. Product structures are similar across life insurers and any innovation can be competed away quickly. Yet, life insurers may adopt different product strategies based on their customer base, risk appetite, economics and nature of distribution network. There is no correct or best answer here, except maybe agility to adapt.
• People: Building and retaining a strong talent pool would remain a source of competitive advantage for any service related industry, including life insurance.
• Digital adoption: This can be on either customer onboarding/partner integration or internal processes. Different companies will be at different stages of evolution and technologies will continue to change at pace. Covid-19 has probably given a strong impetus to digital and one needs to watch out for how life insurers will adapt. It may be important to monitor the pace at which insurers keep evolving on digital.
• Expenses: This can improve the ability of a life insurer to compete. However, it may play out only over the long term. One needs to keep in mind that efficiency by itself is only one parameter and its effectiveness as a differentiator depends on many other parameters.
• Operating leverage: If one wants to look at the future, one may evaluate the runway on operating leverage available and the impact it can have on financial parameters.
• Risk management: This is a difficult one to evaluate with an external lens. I will cover risks in a separate post and one can make a risk checklist to keep a track.
A final note: I have listed only some of the sources of competitive advantage and there can be others as well. I may well have missed out some in the past half hour as I typed this post.