Determinants of Competitive Advantage in Palestine Insurance Industry

Al Motasem Al Masoud

Digital Marketing Department, An-Najah National University, Palestine,
m.masoud@najah.edu

Abstract. This research has explored the most determinant factors of the competitive advantage of both B2B and B2C markets in Palestine insurance industry. The preliminary investigation depended mainly on a pilot study in the form of interviews with leading insurance agents who have excellent experience curve benefits, a large diversified portfolio and high volumes. In addition, review of relevant literature was conducted. Many independent variables were tested. The results showed that the most significant variable in B2C market was the price. This could be attributed to high price elasticity of demand in such a narrow and unstable market operating in an uncertain economic and political environment. Another aspect is that an individual customer would buy motor insurance, which is mostly standardized. The most important variable in the B2B market was the after purchase services simply and partly because these insurance firms seek protection in such unstable market and partly because the demand in this market is inelastic. The paper caps with a number of recommendations to lessen the effect of price competition in B2C market, through differentiation, and to strengthen after sale services for both markets.

Introduction

The insurance industry sector is one of the most important sectors in Palestine economy for it contributes around 4% to Palestine Gross National Product (GDP). It offers many insurance programs in the national market. Some of these programs are compulsory and they include motor insurance and employee insurance policies.

Because Palestinian citizens and insurance firms seek to have commercial stability, it is obvious that the insurance industry is very effective and visible.

It is well known that Palestine lacks political stability and due to that, Palestinian businesses and citizens look forward to having at least economic stability through insurance programs.

The insurance industry, especially after establishment of the Capital Market Authority in Palestine, which in charge of supervising and controlling this sector, has experienced considerable development in terms of doubling the insurance portfolio, high increase in compensation amounts, more advanced insurance services delivered in the market and dramatic increase in the insurance companies’ investments in the economy.

This study is important since there are many insurance companies (nine companies) in a limited market. The rivalry between them is high. Each one strives to have a greater marker share. The large numbers principle in insurance states that the possibility of risk is average as the number of insured people increases and this motivates the rivalry behavior between companies. Each seeks to maximize its share at the expense of others operating in the sector.

The results of the study are expected to help the insurance companies to realize their aspirations, to make higher volumes, profits, to skim opportunities and overcome threats during their business transactions because the Palestinian consumers in the B2C market and businesses in the B2B market have good awareness, possess innovation and education, thus motivating the insurance companies to develop their services on a continuous basis pulled by high demand conditions.

Literature Review

This study depended mainly on semi-structured interviews with leading insurance agents in the Palestinian market (whose sales volume exceeds 1 million dollars, have at least 10 years’ experience in diversified portfolios of motor and non-motor insurance and have rich experience in interactive marketing).

The chosen agents were working with all the insurance companies in Palestine.

The dimensions of the dependent and independent variables were proposed by those agents and in accordance with the literature review

One study, conducted on the Swiss insurance market, found improvement of productivity and efficiency in terms of property/casualty and reinsurance. In the case of life insurance, productivity and efficiency diminished; however, life insurance firms with higher levels of international business exhibited superior efficiency levels. The study researchers found that the diversification strategies targeting the European market were more beneficial compared to those targeting markets outside of Europe. [1]

Another study conducted in Italy reported rapid changes in insurance market industry and mounti“attack” on traditional business by non-traditional sources. The outcome was a growing emphasis on external factors with customer care attributes being chosen as an important source of competitive advantage. Also, executives were also found to be aware of the need to invest more in people and technology at a time when expenses were being examined closer than ever, and distribution channels were witnessing radical changes .[2]

A Nigerian insurance industry study revealed that technological capability played an important role in the insurance industry. Therefore, it was recommended that companies be aware of industry innovations and implement mechanisms that would help upscale their businesses. The study also proposed a transformation of the claims process and introduction of a mobile app to improve the claim process.[3]

Another study on the determinants of corporate diversification found that the extent of diversification was not driven by risk pooling considerations; insurers operating in more volatile business lines did not diversify more. Diversification could rather be explained by the benefits of internal capital markets and barriers to business growth like market size and concentration. [4]

A third study surveyed and identified the factors determining innovation. It also held comparisons drawn with European insurance. The relevance of existing models of industrial innovation was challenged and a new model was constructed for insurance. This model suggested that insurance innovation run broadly counter-cyclical to sustain innovation in the industry. It was relatively non - dynamic. The study concluded by speculating about the relationship between industrial growth, liquidity constraints, and innovation in insurance.[5]

A study on Jordanian health insurance companies showed that the service quality as a whole had an effect on gaining sustainable competitive advantage. Also the responsiveness and empathy dimensions of service quality had an effect on sustainable competitive advantage. [6]

In Kenya, a study was conducted to assess the challenges facing insurance companies in building competitive advantage. It concluded that the most significant factor was government regulation, as a unit change. It led to a 2.453 increase in building competitive advantage followed by an increase in insurance products by 1967. The study recommended that insurance companies be monitored/assessed based on their level of risk. This would ensure a stable insurance industry and accordingly this would play a major role in increasing the insurance penetration.[7]

Also another study in Kenya indicated that majority of the firms used cost leadership strategy to create sustainable competitive advantage. It also indicated that all players, irrespective of the competitive strategy, adopted experienced strategy implementation challenges. [8]

Problem Statement

This paper sought to identify the basic qualities that may enable the insurance companies to have a sustainable competitive advantages in Palestine insurance sector, thus leading and guiding them to more development

Problem Statement Dimensions

This study has tested the relationship between a number of independent variables and the dependent variable: competitive advantage. These variables were introduced by the leading insurance agents in the pilot study and relevant previous studies.

Research Population and Sample

Simple probability samples were chosen from B2B and B2C markets.
Each sample consisted of 100 client; this sample was a good representation of the whole market (the community) since the Palestinian community is totally homogenous in all aspects, and there is no diversifications inside.

Statistical Methods

The simple regression method was used to test the relationship between each of the independent variable and the dependent variable. The multiple regression method was used also to test the relationship between all the independent variables and the dependent variable.

R was used to test the correlation. Step wise regression was used to identify the most effective independent variables.

Data Collection

A questionnaire was developed using Likert scale (5 levels) on a continuum from strongly agree to never. All dimensions of both dependent and independent variables were covered in the study instrument (The pilot study and the secondary data). The questionnaire was completed by the sample participants.

Research Model

The insurance premium Pre-purchase

Variables

Competitive advantages Supplementary services

Covers of insurance policy

Post- purchase variables

Research Hypotheses

Ho: There is no relationship between insurance premium and competitive advantage.

Ho: There is no relationship between supplementary services and competitive advantage.

Ho: There is no relationship between the insurance policy coverage’s and competitive advantage.

Ho: There is no relationship between the three above independent variables (price premium +supplementary services + policy coverage’s) and competitive advantage.

Ho: There is no relationship between post purchase intentions after the accident and competitive advantage.

Ho: There is no relationship between all the independent variables and the dependent variable.

These hypotheses were tested for the B2B market and B2C market.

Research Results

Table 1. : Hypothesis 1

Market	R	R2	Adjusted R2	F	P sig
B2B	0.871	0.758	0.752	4.124	0.15
B2C	0.791	0.625	0.623	6.144	0.031

Table 1 shows rejection of the hypothesis for B2C and its acceptance for B2B. It also shows a relationship between price and competitive advantage only in the B2C market. This is could be attributed to the high price elasticity of demand in the Palestinian market for individual customers due to economic and political instability and the limited income of people. The corporate decisions were found to be rational.

Table 2. : Hypothesis 2

Market	R	R2	Adjusted R2	F	P sig
B2B	0.811	0.657	0.60	4.231	0.00
B2C	0.900	0.81	0.80	6.124	0.00

The supplementary services, as the above table shows, were found to be important for the two markets. This could be attributed to the fact that the supplementary services were used to differentiate one company’s offers from those of others.

Table 3: Hypothesis 3

Market	R	R2	Adjusted R2	F	P sig
B2B	0.830	0.690	0.681	7.124	0.02
B2C	0.121	0.146	0.148	4.225	0.612

As the table shows, the coverage’s were not important for individual customers but they were more significant for company customers. This could be due to the fact that individual customers’ insurance policies were mainly motor insurance and the coverage’s for these policies were mostly standardized, while the coverage’s in the B2B market were mostly non -motor and were customized. It is worth noting that is no one insurance law that covers all the aspects of B2B customers’ needs exists as the case in the B2C markets.

Table 4. : Hypothesis 4

Market	R	R2	Adjusted R2	F	P sig
B2B	0.811	0.6577	0.621	5.133	0.022
B2C	0.751	0.564	0.561	4.001	0.014

The three independent variables’ results were 0.6577 and 0.564 in both B2B and B2C markets respectively. This means some other pre- purchase independent variables were not included in this study. The pilot study and the literature review didn’t cover all the relevant variables.

Table 5: Hypothesis 5

Market	R	R2	Adjusted R2	F	P sig
B2B	0.913	0.833	0.800	15.211	0.00
B2C	0.888	0.788	0.780	13.111	0.00

Table 5 shows that the post purchase behavior for the companies was very important for both markets. No gap was found, for the clients, between their expectations and perceptions. The accident itself symbolizes the moment of truth. This shows that the client would come to buy again and would not switch to competitors.

Table 6: Hypothesis 6

Market	R	R2	Adjusted R2	F	P sig
B2B	0.807	0.651	0.623	7.821	0.10
B2C	0.913	0.833	0.311	13.312	0.00

The values (0.651 and 0.833) show the variance was explained in the dependent variable in B2B and B2C markets respectively. This variance in the dependent variable is good. The study didn’t include all the independent variables. The results were attributed to the fact that businesses have diversified needs which couldn’t be included in just one study.

Stepwise regression analysis

The results of this study showed that the most important independent variable was price in the B2C market while the most important determinant in the B2B market was post purchase services. This could be attributed to the fact that the customers in the Palestinian market were very price sensitive and they usually bought motor insurance which is mostly standardized. The businesses were more rational in their purchase decisions and usually bought customized services. That is, they were less sensitive to price and gave top priority to the insurance coverage’s to protect themselves due to the economic and political uncertainty

Recommendations

This study suggests that the insurance companies in Palestine direct their efforts to diversification of their offers for both individual and business customers, lessen the effect of the price on purchase decision for the individual customers and give more weight to corporate customers who seek to have more confidence and protection for their institutions in a market in which law enforcement is considered to be poor.

References

1.	Biener, C., M. Eling, and J.H. Wirfs, The determinants of efficiency and productivity in ii zthe Swiss insurance industry. European Journal of Operational Research, 2016. 248(2): p. 703-714.aa

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3.	ما في مؤلف !!!Assessing technological capability, as a competitive mu advantage in the Nigerian insurance industry. International Journal of Management Concepts and Philosophy, 2020. 13(3): p. 217-235.

4.	Berry-Stölzle, T.R., et al., Determinants of Corporate Diversification: Evidence From the Property–Liability Insurance Industry. Journal of Risk and Insurance, 2012. 79(2): p. 381-413.

5.	Pearson, R., Towards an Historical Model of Services Innovation: The Case of the Insurance Industry, 1700–1914. The Economic History Review, 1997. 50(2): p. 235-256.

6.	ما في مؤلف !!!!The impact of service quality on sustainable competitive advantage: study on Jordanian health insurance companies. International Journal of Business Excellence, 2018. 16(2): p. 162-176.

7.	Kiragu, S., Assessment of challenges facing insurance companies in building competitive advantage in Kenya: A survey of insurance firms. International journal of social sciences and entrepreneurship, 2014. 1(11): p. 467-490.

8.	Ilovi, C.M., Sustainable competitive advantage in the insurance industry in Kenya. 2011.

Appendix: Questionnaire

Statement	Strongly agree	Agree	Neutral	Don’t agree	Never
Competitive advantages	The company has the largest share in the market
The company makes excellent annual profits
The company has a diversified portfolio of customers
The company has large portfolio of insurance coverage’s
The company has agreements for re insurance programs
Price premium	Price premium is in direct proportion with the risk
Price premium is in direct proportion with other competitors’ prices
Price premium could be paid through later payments
The company gives discounts on the official price
Supplementary services could be awarded for free
The price premium could be paid in any of the three currencies in Palestine
The excess in the case of accidents is low
The company reminds the client of the date of renewal
The company makes fast delivery of the policies
Supplementary services	The company awards promotional gifts to their customers
It takes a short time to issue the policies
Conditions and coverage’s of the policy are clear.
Exclusions are clear.
Policy coverage’s	There are reinsurance programs that back our policies
The company’s financial viability is well known
The company employee’s treatment of customers is courteous
The company has excellent record in fulfilling claims
The company is responsive to consumers’ questions
The time needed for the insurance investigator to reach the accident is short
Post purchases services	The time needed for repair and maintenance is short
Health treatment for the injured is of high quality
The procedures and documents needed for the accident are simple and short
The repair garage is of high technical efficiency
The appointed health care teams are of high quality
The injured could be treated abroad if needed