The Munich Re Group is a multinational firm dealing in the financial services industry, offering a broad range of primary insurance, reinsurance and asset management services across the globe. The organization was formed in 1880 and having its Headquarters in Munich, Germany. The firm is operating among different regions through the network of multiple subsidiaries. As of 2019, the business reflects an impressive figure of revenue which is 51.4 billion Euros, and over 39,000 individuals are attached under the firm’s roof (Munichre, 2019). From the viewpoint of the global financial services and insurance industry, a study of the Porter Five Powers will help examine the company’s strategic role in the Insurance industry to conquer threats and develop opportunities.
Competitive Rivalry in the Market
The competitive rivalry in the financial services sector is considered high because thousands of insurance firms are operating in the industry, looking to meet the demands and economic needs of the community. Ranging from their wealth and asset management plans, insurance coverings and reinsurances. As a result of these variances, many insurance firms took initiatives and tried to capture the market’s considerable size in the industry, which created competition among the firms very strong. The firm’s significant competitors are Berkshire Hathaway, Zurich Insurance Group, Tokio Marine Holdings, and Swiss Re. According to Statista (2020), Munich Re is trying to lead the market in the property and casualty insurance worldwide with the revenue of 71.79 US billion dollars, with Berkshire leading the table with revenue of 254.62 and others 71.79, 50.27 and 49.31. Therefore, such a presence of firms leads to an atmosphere of tough competition.
Threat of Substitutes
The threat of substitutes in context to the financial services industry is considered because the nature of the products and services are not much different. The consumer’s desire to swap a firm’s output with another to satisfy necessity is the core element in the vulnerability of substitution products or services. In this situation, insurers might not have to deal with any substitute products or services. As a method of alternative financing, the digital transformation of goods and services has changed the essence of financial dealing and engagement between customers and the business. (Bilan et al., 2019). As a result, the threat of substitutes within the industry is low.
The Threat of New Entrants
The threat of new entrants in the financial services industry is considered low to moderate since a new company in the sector encounters a more substantial degree of competition. This pressure affects placement, promotion, and practices within the sector. Another factor that becomes an obstacle is that the consumers have developed interest and confidence in the services of operating firms, and to attract such mindsets, a lot of struggle and time is required with product differentiation. Moreover, the risk of securities, the investment necessary to develop the network and the factor of regulatory requirement are challenging to handle as well (Lo, 2015). However, brokers and agents in this industry can help new firms to get the customer base. Therefore, the latest entry threat is considered to be low to moderate.
Bargaining Power of Buyers
The bargaining power of buyers is moderate in the financial services sector because of the various product and service offerings available in the market. Although big corporate customers who pay significant premiums have purchasing power, contemporary account holders are a factor owing to advances in information technology and the growth of the internet. The cost of switching among the firms also influences the customer satisfaction and loyalty as they are aware of the quality they are getting in return for their premiums (Feng and Wang, 2016). Therefore, such awareness can lead to an increase in buying power of customers in the industry.
Bargaining Power of Suppliers
The authority of suppliers in bargaining is considered moderate in the financial services because of the specialized and limited product and services that are being offered in the market. Furthermore, the financial sector relies on various sources for finance, including the availability of credit, deposits, and other instruments that guarantee the money supply in the industry. When it comes to negotiating, supplier trading costs and product differentiation may have an effect on suppliers’ presence in the exchange (Indiasty et al., 2014). However, the firms are bound to reduced premiums of charges to a specific minimum level. Hence, making supplier power in the industry moderate.
References
Bilan, Y., Rubanov, P., Vasylieva, T.A. and Lyeonov, S., 2019. The influence of industry 4.0 on financial services: Determinants of alternative finance development. Polish Journal of Management Studies
Feng, T. and Wang, D., 2016. The influence of environmental management systems on financial performance: A moderated-mediation analysis. Journal of business ethics, 135(2), pp.265-278.
Indiatsy, C.M., Mucheru, S.M., Mandere, E.N., Bichanga, J.M. and Gongera, E.G., 2014. The application of Porter’s five forces model on organization performance: A case of cooperative bank of Kenya Ltd.
Lo, A.W., 2015. The Gordon Gekko effect: The role of culture in the financial industry (No. w21267). National Bureau of Economic Research.
Munichre, 2019. Annual Report. [online] Munichre.com. Available at: https://www.munichre.com/content/dam/munichre/mrwebsiteslaunches/2019-annual-report/MunichRe-Group-Annual-Report-2019-en.pdf/_jcr_content/renditions/original./MunichRe-Group-Annual-Report-2019-en.pdf.
Statista, 2020. Leading global P/C (stock) insurers by revenue 2019 | Statista. [online] Statista. Available at: https://www.statista.com/statistics/185758/leading-global-property-and-casualty-insurance-companies-by-revenue/.