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Insurance Insight: U Y C E
Insurance Insight: U Y C E
INSIGHT
2008-1
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.
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5.
Degree of rivalry;
Threat of substitute products or services;
Buyer power;
Supplier power; and
Barriers to entry.
In this
Issue
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
requirements.
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,
1985.
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Staff News
Mileage Rate Increase - In response to higher gasoline prices, the Internal Revenue Service has
announced an increase in the Standard Federal
Mileage rate for the last half of 2008. Effective July
1, 2008, the mileage rate for business miles is 58.5
cents. This represents an 8 cent increase from the
rate effective for business miles driven between
January 1 and June 30, 2008.
STAFF NEWS
Mark J. Ellsworth, CPA, has completed the requirements for the Associate
in Reinsurance (ARe) diploma program sponsored by the American
Institute for CPCU and Insurance Institute of America. 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, Mark!
We would like to introduce Ranae Scholten. Ranae is a junior accountant
at Cain Ellsworth & Co and has just completed her first year with the firm.
Ranae works with the insurance team providing assurance services and
investment accounting. Ranae lives in Sheldon, Iowa, and in her spare
time enjoys bowling and traveling.
We are excited to have Ranae as a part of the CECO team!