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By Mark J. Ellsworth, CPA

As insurance markets become softer, competition becomes
more fierce – and companies and their managers are seeking to develop an ‘edge’ over rival companies.

lower prices. In a hard-market cycle, insurers’ capacity is
more limited – making it more difficult for customers to
gain price concessions or broader coverages.

In Michael Porter’s classic work, Competitive Strategy1, he
introduced the Five Forces Model for analyzing the competitive environment and describes five forces that drive

Supplier Power
In the insurance industry, reinsurers are the most significant supplier to primary insurance companies. Insurers
need access to reinsurance in order to profitably write business. In a hard market, reinsurers are generally in a position to control both the prices they charge and the capacity they provide. After the terrible catastrophe of
September 11, 2001, reinsurers implemented significant
price increases to offset losses and declining investment
returns. The price increases restricted the amount of coverage that the primary insurance companies could provide
to their customers.


Degree of rivalry;
Threat of substitute products or services;
Buyer power;
Supplier power; and
Barriers to entry.

Analysis of Porter’s model can serve to help insurance
company managers and directors better understand their
company’s competitive position and help determine strategies that will best serve the company.
Degree of Rivalry
Rivalry among insurance companies is intense – which is
described as an undisciplined market. Since collusion is
illegal and the industry is highly regulated, competitive
moves in low-rivalry industries like insurance must be
restrained informally. However, an aggressive company
seeking to gain an advantage can disrupt an otherwise disciplined market by lowering prices, improving product features, or using innovative distribution channels such as the
Threat of Substitute Products or Services
Currently, the threat of substitute products or services is
not a significant factor in the insurance industry. If future
legislative changes were to require customers to purchase
insurance from government-sponsored entities, it could
pose a threat of substitution for traditional insurance coverages.
Buyer Power
In a soft-market cycle there is generally excess capacity
and many insurers competing for the customer’s business.
Buyers are in position to demand broader coverages and

In this

Understanding Your Competitive
Did You Know…

Barriers to Entry
Some companies create barriers to market entry by offering unique or customized insurance products and services
to their customers, whereas, other companies build competitive advantage on efficient and prompt claims service.
A long-term and mutually beneficial relationship with a
group of producers can provide a competitive advantage.
The barriers to entry into the insurance business are relatively low and are primarily restricted to the financial
investment required to meet regulatory minimum capital
In summary, one can expect a high level of competition in
an industry that has many companies, little differentiation
among products and services, and high exit costs. All of
these factors are present in the insurance industry – making it an extremely competitive market. The challenge is
to identify and leverage any competitive advantage an
insurance company may possess. If a company is unable to
gain a competitive advantage, it is left with few options
other than to compete on price.
See Michael E. Porter “Competitive Advantage: Creating and
Sustaining Superior Performance”, New York: The Free Press,

Staff News

Iowa. please give Jo Hindt a call at (712) 324-4614 or email her at jkh@cainellsworth.324. Effective July 1. 2008. Iowa 51201 PHONE: 712. Ranae lives in Sheldon. The purpose of the law is to ensure that employees receive their paychecks in a timely fashion. CPA. s. it is still permissable to mail paystubs or pay summaries to employees. Ellsworth. STAFF NEWS Mark and in her spare time enjoys bowling and traveling.Iowa employers. the Internal Revenue Service has announced an increase in the Standard Federal Mileage rate for the last half of 2008. Cain Ellsworth & Co. This represents an 8 cent increase from the rate effective for business miles driven between January 1 and June 30. It has truly been a pleasure to serve you! If you have questions. you may no longer mail a paycheck without prior written authorization from the employee? Mailing checks to employees is no longer allowed without having a signed authorization form on file prior to mailing the paychecks. CECO Anniversary .4614 FAX: 712. an employer may also be held liabile for bank overdraft charges that are assessed an employee if the employer fails to pay an employee's wages on or by a regularly scheduled payday. has completed the requirements for the Associate in Reinsurance (ARe) diploma program sponsored by the American Institute for CPCU and Insurance Institute of America.In response to higher gasoline prices. We are excited to have Ranae as a part of the CECO team! Cain Ellsworth & Co. 2008. LLP 1008 Third Avenue PO Box 449 Sheldon. Ranae works with the insurance team providing assurance services and investment accounting. Mark! We would like to introduce Ranae Scholten. Thank you to all of our clients and friends for making our success possible. According to the Iowa Workforce Divison of Labor Services. . We appreciate the confidence and trust you place in us. We feel confident that the knowledge Mark has gained through his advanced education will help us to better serve our clients in the insurance industry. Congratulations.Did You Know… Payroll Check Mailing Law . the mileage rate for business miles is 58. did you know that effective July 1.4617 www.In July 2008. 2008.5 cents.324. Ranae is a junior accountant at Cain Ellsworth & Co and has just completed her first year with the firm. Mileage Rate Increase . celebrated 40 years in business.