Sompo Holdings, Inc. is a publicly-traded company dealing in the insurance industry, offering a wide range of life insurances, casualty insurance, wealth management, and venture capital businesses covering almost every region of the world. The group was formed in 1887 and having its Headquarters in Shinjuku, Tokyo, Japan. The firm aims to become the best insurance service provider both at home and abroad. As of 2018, the business reflects an impressive sales figure of around 123.8 billion yen, and over 80,000 individuals are attached with the firm (Sompo, 2019). From the global insurance industry viewpoint, a study of the Porter Five Powers will help inspect the company’s strategic role in the Insurance industry to conquer threats and make use of opportunities.
Competitive Rivalry in the Market
The competitive rivalry is considered to be high in the insurance industry because of the number of companies already operating in the market to fulfill the economic and better health needs of the community. As a result of these demands, many insurance firms took initiatives. They tried to capture the market’s considerable size in the industry, which results in intense competition among the existing firms. According to Statista (2021), Sompo Japan is trying to lead the market by showing progress among non-life insurance firms with a net profit of 130.8 Billion Japanese Yen in the Japanese marketplace. The significant firm competitors are Tokio Marine & Nichido, Mitsui Sumitomo, and Aioi Nissay Dowa, with a net profit amount of 169.97, 94.08, and 44.78 billion Japanese Yen respectively. Therefore, the presence of such companies making the environment of tough competition.
Threat of Substitutes
The threat of substitutes in perspective to the insurance industry is considered to be low because the services and products that are being offered in the market are somewhat similar among the firms. The consumer’s willingness to offset a firm’s output with another to satisfy the need is the critical aspect of substituting products or services. In this situation, insurers might not have to deal with any substitute products or services. However, the insurance development has made this much more apparent by facilitating insurance innovation and creativity that accommodates prospective customers looking for a fresh approach to traditional insurance (Manuel, 2016). Hence, making room for the availability of substitutes low in the industry.
The Threat of New Entrants
The threat of newcomers in the insurance industry is relatively low because the operational firms in the market have maintained entry barriers which make it difficult for the new firm to compete and position itself in front of them. Mergers and acquisitions of small firms by the big players are also the cause of reducing the entry of newcomers. Furthermore, the investment needed to establish the setup and network is not an easy task; advisory services are also much complex, along with the legal fees and requirements (Myrvoda, 2014). However, the customers can show reluctance to new firms as the brand image is the significant factor to avoid any fraud and risks. Therefore, considering such hurdles from different aspects the threat is minimal in the sector.
Bargaining Power of Buyers
The bargaining power of consumers is considered to be moderate in the industry. Consumer bargaining power may be a hassle to contend within the sector as there are many choices for buying goods and services. With the advancement of technology in the environment, customers are becoming more aware of the policies and differentiation among the companies’ products which influence their buying behavior. Owing to such ability, customers demand personalized plans with the availability of low switching costs. (El-Manstrly, 2016). Hence, such patterns of buyers activity make the power of negotiating higher in context to the insurance industry.
Bargaining Power of Suppliers
The bargaining power of suppliers in the insurance sector is relatively moderate because suppliers can put a lot of pressure by increasing premiums, lowering quality, or limiting access to products and services. The amount paid by consumers in terms of annual or monthly premium is considered to be the significant supplies of industry. Cross-selling insurance brokers have typically used their influence and expertise to convince account holders to do deals with specific companies (Gasc, 2016). However, people have more open choices to select from due to the availability of a number of service providers in the market. Hence, making the supplier power moderate in the industry.
References
El-Manstrly, D., 2016. Enhancing customer loyalty: critical switching cost factors. Journal of Service Management, 27(2).
Gasc, J., 2016. Insurance agents will continue to have a valuable role in the new digital distribution era – Accenture Insurance Blog. [online] Accenture Insurance Blog. Available at: https://insuranceblog.accenture.com/insurance-agents-will-continue-to-have-a-valuable-role-in-the-new-digital-distribution-era
Manuel, E.G., 2016. The Five Competitive Forces of the Insurance and Pension Funds Industry for the Angolan Case. Arabian J Bus Manag Review, 6(270), p.2.
Myrvoda, A. and Sutton, B.W., 2014. Barriers to Integration in the Insurance Sector. In Financial Integration in Latin America. International Monetary Fund.
Sompo, 2019. Annual Report. [online] Sompo-hd.com. Available at: https://www.sompo-hd.com//media/hd/en/files/doc/pdf/annualreports/2019/annualreport2019.pdf?la=ja-JP.
Statista, 2021. Japan: major non-life insurers by net profit 2019 | Statista. [online] Statista. Available at: https://www.statista.com/statistics/756036/japan-leading-non-life-insurers-by-net-profit/.