Old Mutual Limited is a pan-African investment, savings, insurance, and banking group. It was founded in South Africa by John Fairbairn in 1845. The company employ more than 28 000 people and operate in 17 countries across three regions: Africa (South Africa, Namibia, Botswana, Zimbabwe, Kenya, Malawi, Tanzania, Nigeria, Ghana, Uganda, Rwanda, South Sudan and Eswatini), Asia (China) Latin America (Colombia, Mexico and Uruguay) – the sale of these businesses was announced in March 2018, pending regulatory approval (Old Mutual, 2021). Its core business divisions are insurance, a policy backed lending and investment management. It provides services through its multiple subsidiaries. Porter’s five forces model is a valuable tool to identify threats and opportunities faced by Old Mutual in the financial sector in Africa.
Competitive Rivalry in The Market
The insurance industry in the world is very competitive. The competition means that there is little margin for error. Old Mutual is in the top 25 insurance companies in Africa (Atlas Mag, 2013). The primary rival of Old Mutual’s is Sanlam, Momentum Life Assurers, and Liberty Group. All of these companies provide insurance, financial asset management services, and products all over Africa. As of 2017, Old Mutual delivers its services to over 12 million customers in the world (Craft, 2021). Old Mutual posted revenue of £8.77 B in 2018 (Craft, 2021). Old Mutual has a minor advantage over the competitor is due to its more extensive clientele and multiple products. It caters to individuals, corporate companies, and the government. It needs to adapt to the changing market and introduce the product to grow its client base for better financial stability.
Threat of Substitutes
Internet of Things (IoT) has a driving force behind the evolution in the last two decades. The insurance industry is evolving with it to meet the demand of the time. Fintech and Insurtech ventures are posing a serious threat to traditional banks. The industry is designing and developing tools to use IT to provide a better solution for the client. Companies are investing in Blockchain Technology. According to Mckinsey (2016), Technology can use it to innovate insurance products and services for growth, increasing effectiveness in fraud detection and pricing, and reducing administrative costs. Old Mutual has introduced E-Wallet to speed up the digitalization of its banking system, and it was a successful intervention due to Pandemic (Old Mutual, 2020). The threat of substitutes is moderate in the industry, and Old Mutual adapts fast to that change.
The Threat of New Entrants
The new entrants must come with new innovative products to create space for their development in the market. The higher initial cost and high sunk investment make it difficult for a startup to compete with established insurance companies. The financial industry is strictly regulated worldwide, and it is due to the sensitivity of the sector. Regulatory authorities had a broad set of rules to protect the economy from any financial crisis. The major products are pretty much the same. The IoT is evolving the financial sector. The insurtech and fintech can pose a serious threat to the business. It will not take over the industry, but it can be used as a tool to develop better products. Insurtech startups have drawn around $17 Billion in investment in the last decade (Deloitte, 2019). The startups can affect the overall business profit. The threat of new entrants is at a moderate level.
Bargaining Power of Buyers
The buyers of financial products are individuals, business companies, and government institutes. According to Hill and Jones (2012), individual buyers are individual end-users of the product, whereas companies are the retailer or wholesalers. The individual buyer cannot exert significant bargaining power, but nowadays service sector has evolved. Customer can easily switch to other product. At the same time, business companies and government institutes can claim better deals. Companies have more bargaining power because they provide more extensive clientele and opt for their services in bulk, providing long-term clients and financial stability for the future. The overall bargaining power of buyers is moderate.
Bargaining Power of Suppliers
Suppliers in the insurance industry are mainly of two types. The agent and brokerage firms that bring human capital and corporate clients to the insurance company. The other one is the lending institutes which provide funds in case of payment. Lending institutes hold higher power because they lend loan due diligence. Suppliers can exert power if the market has fewer suppliers, and it has clients under him. The suppliers with a better distribution channel and marketing can get a better deal for Insurance Corporation. Suppliers typically exert high bargaining power when offering the exclusive product or specialized services or controlling the source of the material provided. The suppliers need to be forward integrated as well to be able to stick in the market (HBR, 1979). Overall, the bargaining power is moderate against the insurance industry.
References
Atlas Mag. (2013). The top 25 African insurance and reinsurance companies. Available at: https://www.atlas-mag.net/en/article/the-top-25-african-insurance-and-reinsurance-companies
Craft. (2021). Old Mutual. Available at: https://craft.co/old-mutual
Deloitte. (2019). Accelerating insurance innovation in the age of InsurTech. Available at: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/financial-services/us-accelerating-insurance-innovation.pdf
Harvard Business Review. (1979) How Competitive Forces Shape Strategy. Available at: https://hbr.org/1979/03/how-competitive-forces-shape-strategy
Hill, C. W., & Jones, G. R. (2012). Essentials of strategic management. Cengage Learning.
Mckinsey. (2016). Blockchain in insurance – opportunity or threat? Available at: https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/Blockchain%20in%20insurance%20opportunity%20or%20threat/Blockchain-in-insurance-opportunity-or-threat.ashx
Old Mutual. (2020). Africa leading innovation on Old Mutual’s digital journey. Available at: https://www.oldmutual.co.za/news/africa-leading-innovation-on-old-mutuals-digital-journey
Old Mutual. (2021). About Old Mutual. Available at: https://www.uapoldmutual.com/about-us/who-we-are/about-old-mutual