Strategic Management Aviva PLC Report

Modern College of Business and Science

Individual project
Strategic Management
Company- Aviva PLC

About Aviva
Aviva plc is a UK based company competing in the industry of insurance and financial services. Its services range from life insurance, annuities, unit trusts, pensions plans, and financial and investment services. It is the UK’s largest and world’s seventh largest insurance company. It has over 53 million customers under its market. Aviva was formed in the year 2002 when Norwich Union came up in a merger Commercial Union (the two insurance companies). Aviva provides all types of insurance policies ranging from house insurance, motor insurance, life insurance, fire insurance, natural disaster insurance, health insurance, and others as well. It also provides financial consultancy, investment, and pension funds services. The aim of Aviva is well being of its customers and the commitment to deliver their customers the best service.

What industry does Aviva compete in?
Aviva competes in an industry which in the current era has become very essential for individuals to consume since every individual thinks about their financial security and the backup from uncertain happenings. Especially in the western countries, people see it as an essential service for their current and future security. Therefore, Aviva competes in an environment where the demand is a must. Apart from this, many companies and assets are forced by law to be insured, thereby creating a definite buy of the service.
Aviva competes in an oligopolistic market, where most of the market is occupied by a few large financial institutions, and in addition there is a huge investment to get into the business. The services provided are somewhat similar to the other firms in the industry, so all that customer cares is firstly about the price/rates and their satisfaction from the customer care perspective of these firms (most of the financial institutions provide most of the services like health insurance, car insurance, housing loan, education loan, pensions, investment service, etc).

Strategic group map and discussion of the company This is the strategic group mapping of the insurance companies in the world. Aviva is the sixth largest insurance company in the world and the largest in UK with total sale of $73 billion (in 2010). Aviva has created a very strong base for its further development and further increase/improve its position. The rivals of Aviva are also strongly positioned and overcoming them will not be an easy task because all these companies rank among the top in the world. Some of the rivals like Allianz, AIG have much greater market share than Aviva. This becomes an agenda/goal for Aviva to compete and create (gain) more scope for these firms. The main reason for Aviva to reach this place is the commitment to their customers and delivering them the best service.
The competition between these firms is quite strong and very tough since every firm is looking to expand more and more into new locations and also gain new customers. Setting an insurance premium is not an easy task because these firms have to see the market premiums, what other firms are charging and in addition, the claim are not really certain i.e. the insurance claims can vary with the conditions happening.
Aviva’s market share is 11.1 % of the total UK market, which is increased from 9.7% (2009-2010). This means it has a very good rate of growth in the UK. Not only this, Aviva has managed to grow life and pension sales up by 16% in the year 2010. Aviva is well strongly positioned in the group mapping, utilizing the maximum use of its strengths and opportunities. Aviva has a strong financial strength with $631 billion under management, which it utilizes to reach every possible market in the world. Aviva serves more than 53 million customers. As of December 2010, Aviva was ranked as the world’s eight ranked insurance company in terms of market value being $33.1 billion compared to $172.24 billion of the industry giant AIG and $66.12 billion of the second ranked AXA. Percentage of market value of Aviva of the world’s top 10 insurance companies is 5.82%. Though Aviva is among the world’s top insurance companies, market share is not evenly distributed. Aviva is well behind the industry giants. Most of the market is captured by companies like AXA, AIG, Manulife, and Generali. This is one of Aviva’s weaknesses and it also serves as a goal for Aviva to firstly reach to the level of the competitors above its level, and then expand more to be more effective and capture more market than them. At the moment, Aviva is short positioned than those whom it competes directly. It is also the weakness of Aviva that it could grow its revenue in recent years to the level their competitors have managed to.
Aviva has found out the market opportunities to enter nations of the developing countries (especially India) where population is very high and where many good insurance companies don’t exist. People in these countries have a lower income, so they rely on external factors for their future living. Aviva has seen the scope and entered the market with life insurances and pension services. This growing market can be an ultimate opportunity since people have now realised that they need financial security for their living hood.

Direct competition and nature of rivalry
Much similar to the typical business strategy, the competition in the insurance industry is as well to capture the maximum no. of customers and reach every possible geographic opportunity. Aviva’s direct competitors differ from location to location, but most of its direct competitors are AXA, ING, AIG, Generali, Allianz, State farm, Nippon Life and Prudential. These are the rivals that offer almost the same services. Along with certain other companies also in the list, their competition has become very intense as what the customer demands is the best rates for their savings and the lowest possible premiums for the insurance. The first factor in this competition comes from the trust people have on these companies and their goodwill, because customers when buying an insurance plan fear the extent to which they may get their claim, or to what amount, and the measures which the insurance companies take to give the claim. If these are very time consuming and insurance companies are very strict, people are unlikely to go to that company. Every customer also cares about the best price for what he buys. With this intense competition, insurance companies have lowered their premiums especially in Europe and India.
It is a fact and is also seen in Insurance and Financial Industry that competition lead the prices down, but competition in this industry is much relaxed and a ‘cool’ competition. The services offered are not ‘exactly’ the same since there are differences in the terms and conditions of each company. There are differences in the type of claims and the type of services offered. Customers have to study before buying any plan of the related services and compare with those of other companies. It is not a small process such as those of identical products, where products are offered and we choose between them. Therefore, customers are more attracted by the forces of trust created by the company, along with the prices offered as well.

Threat from indirect competitors
One of the indirect competitors of the Aviva investment sector has become the investment in gold. With the threat of the recent crises, many people have changed their ideas of investing in the investment companies, and rather invest their savings in gold. Gold is a metal with an excellent liquidity, and which has a history of rising prices. When investing in gold, people are probably saving in a metal whose prise is expected to rise very sharply (according to many economists). Investments in investment companies only give a certain percentage of return and our assets are bond with them over a period of time. This disadvantage does not apply with gold. One can sell gold at any point of time and recent facts show that gold has risen from $800-$1900 an ounce from 2007 to 2010. This increase is more than 100%, whereas a typical financial institution will give up to 3-4% return.
In case of young generations, who are more of spending oriented generations, spending in different activities become an indirect competitor for the financial services. This generation saves very less and spend most of their income spending on shopping and other activities to enjoy their life. This is threat to the financial institutions and they will soon come up with the motivational advertisements to capture this type of market.
Warranties in certain assets like cars and machineries allow no use of insuring them because of the breakdown or the problems occurring. Nowadays, these problems are fixed by the manufacturers, which are carried under warranties, so the demand for insuring these falls off.
Governments often provide their people with pension benefits and claims at time of uncertainties (natural calamities). These also serve as an indirect competitor to Aviva and other financial and insurance companies. This may not be of a much threat to these companies since individual may not rely only on govt on their security, and they may probably take a safe step to these companies. It may differ from individuals to individuals.

Degree of threat from new entrants
The financial and insurance industry is mostly captured by a few big giants. It is not very easy for a new entrant to come and catch hold of a place in this market. There are a lot of barriers preventing new entrants into the industry. Those are
• Huge investment- The position Aviva is at requires a very huge investment which for a new entrant might be very difficult. Entry to the insurance industry is possible but reaching to the extent where Aviva and such companies operate would be very difficult
• Customer loyalty- Customers in this sector do not really shift from one company to other. Usually they have mid-long term contracts and very rare do they change the company they buy service from (until they occur any problem/dissatisfaction from the company). In addition, the goodwill in the view of customers takes a very long time to gain for any new entrant
• Since this industry relate to the well being of the customers, any potential new entrants might have to pass through certain measures of the govt.
Because of the above factors, it is difficult for the extreme new companies to enter the market. But it does not say all. Large companies with excellent goodwill in other type of business may have funds and might use their name and goodwill to enter the industry. An example of such is seen in India where Avantha Group, a conglomerate company is in a discussion for a joint venture with German insurance company Munich Re Group to start Life Insurance services in India. New entrant might find very difficult to operate on a very large scale. There doesn’t seem to be much threat of losing many customers if the new entrant enters the market because Aviva already has its set of customers under its market, which might not be attracted to change their insurance companies. New entrant on the other hand will lead the market prices to come down.
Threat for Aviva might be in a market where Aviva is dominant and some other reputed companies like ING or Allianz enter the market. These sorts of companies are eligible to take the market from such companies like Aviva. But these may not really be called new entrants, but that they are entering a new geographical location.

Powerful buyers
Insurance and investment is a vast market which has now become an essential for everyone in the current era. Each and every customer is a powerful buyer since a buyer adds value to the organisation and become a source of its earning. We can term customers ‘more powerful buyer’ if they avail more insurance and investment services from the company. For instance, a customer availing motor insurance, home insurance, life insurance and several investment services is said to be a more powerful buyer than a person who is availing only the life insurance plan. For insurance companies, powerful buyers are firstly the large companies who insure all their assets, employees with them and secondly any individual who completely trusts the financial institution and cares more about his/her financial security availing services from the financial company. These individuals are ones who are likely to give more business to these companies.
Other powerful buyers are people in the developing nations, whose incomes are not very high. People in these countries but their house and cars, but do not enough to support them in case of uncertainties. Insurance becomes very essential to them. Also, these people because of their low income are not able to save much for their future, hence are more encouraged towards pension funds and life and health insurance plans.
One of the powerful buyers is also the small insurance companies in many parts of the world. These companies insure themselves with the big insurance companies like Aviva, Allianz, etc

Effect of dynamic forces on Aviva
One of the dynamic forces of the companies worldwide was the recent global crises in 2006. It has affected adversely many sectors of the business, but to the insurance companies the effect has not been the same way. Though the stock prices of Aviva were fallen by 26%, the company did not have a further threat of being collapsed because the demand for insurance plans and consultant services increased during that time. As of 16th June, Aviva noted the following changes in the prospects of the customer after the global crises
• 61% of clients are now more likely to ask for advice on pensions
• 22% report greater levels of trust in advisers than before the financial crisis
• 70% now more worried about how to pay for their retirement.

This worry among people has become a positive sign for insurance companies in the long term as they gain more no. of customers.
This dynamic force has led Aviva to be more efficient in their operations. The reasons for this are that in an environment where most of the businesses are idle of the customers, this is one where customers themselves show up. Bearing the crises situation, having increased demand is sort of a blessing on Aviva, leading them to be more efficient in their operations.

Life cycle effects
It is difficult to know the life cycle effects on insurance plans since this type of service do not usually have a decline on its life cycle. Aviva has passed through various mergers and acquisitions to reach and acquire the position it hold today.
According to Swiss Re ltd, the world’s second largest insurer, natural calamities since last year in Japan, New Zealand, and Thailand had cost the insurance industry $110 billion. These situations become a threat to all insurance companies since losses on these are not certain. The more the calamities, more threat it for an insurance agency as we can’t measure the losses and compare to credit position of the company. Losses can even extremely cross the credit position. It happened in India when Tsunami hit the coast; Aviva had to pay many families cover for their life insurance, health insurance, etc.

Driving forces
The driving forces provides Aviva with new opportunities, cause them few threats, and make Aviva rethink to change their ideas and policies. These driving forces make Aviva to change their courses of actions taken, make new actions, or stop the ongoing actions. The driving forces for Aviva are:
• Increased globalisation- Globalisation has led Aviva to plan its expansion on geographic locations increasing its market to almost all parts of the world having over 53 million customers.
• Emerging online services- Now, one can get to know all the details about insurance plans and financial services offered by Aviva online, and even ask any queries online. It becomes much easier to handle customers and respond to their needs.
• Advertisement- Advertisement has become one of the major driving forces in the insurance industry. It is the most effective way to reach mass population
• Growing knowledge- Knowledge of the necessity of financial services has been growing in the recent years in the people.
• Growth-Growing demand and globalisation has increased efficiency and decreased the unit costs to the company
• Death rate- Aviva tends to invest more of its life insurance operations where death rate is less. Lower death rate means giving away less for life insurance benefits

Driving forces has increased the demand for Aviva services and has also increased competition between the insurance companies. If Aviva is able to operate efficiently and use its strengths to retain the competitive assets and achieve and sustain competitive advantage, it is in a very good position to increase profitability, otherwise the competitors are also in great position to take any given opportunity.

References http://www.popularsomething.com/2010/01/top-10-insurance-companies-in-world.html#comment-form http://www.globalbusinessinsights.com/content/rbfs0072m.pdf http://biz.yahoo.com/ic/57/57334.html http://www.investopedia.com/features/industryhandbook/insurance.asp#axzz1sFCdP8cY http://money.sulekha.com/life-insurance-sector-soon-to-see-new-entrants-as_09_2010_postedby_rupeetalk http://www.fundinguniverse.com/company-histories/Aviva-PLC-Company-History.html http://www.cpsinsurance.com/assets/files/News_Docs/3.4.11%20Avivaplc2010results.pdf http://mobile.bloomberg.com/news/2012-03-28/swiss-re-says-2011-natural-disasters-cost-insurers-110-billion

References: http://www.popularsomething.com/2010/01/top-10-insurance-companies-in-world.html#comment-form http://www.globalbusinessinsights.com/content/rbfs0072m.pdf http://biz.yahoo.com/ic/57/57334.html http://www.investopedia.com/features/industryhandbook/insurance.asp#axzz1sFCdP8cY http://money.sulekha.com/life-insurance-sector-soon-to-see-new-entrants-as_09_2010_postedby_rupeetalk http://www.fundinguniverse.com/company-histories/Aviva-PLC-Company-History.html http://www.cpsinsurance.com/assets/files/News_Docs/3.4.11%20Avivaplc2010results.pdf http://mobile.bloomberg.com/news/2012-03-28/swiss-re-says-2011-natural-disasters-cost-insurers-110-billion