Tic Competitiveness
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Competitiveness Paper 09/25/2009
Tom Madden
Marquette ID: 005400390
The industry that TIC, Inc. competes within is NAICS coded 524210 as an insurance broker. We provide risk management consulting and brokerage solutions to businesses and individuals. We do not carry an inventory of any material other than paper, intellectual, and personnel capital. The services we provide are usually viewed as necessities by the end user to provide financial protection against an unknown loss. Within our field our target client could be: individuals, businesses with less than 100 employee’s, or a special niche within the agricultural community. The market focus helps to segment us from other competitors in the insurance brokerage community. Our industry would be a combination of a perfect and monopolistic competitive marketplace. Since there is virtually no barrier to entry other than intellectual capital there are many firms in the brokerage arena who provide the same services with the same products with virtually, if not the same, costs and revenues. However, there are a handful of brokers in WI that are larger in size than the majority of competitors that are present. The worldwide brokerage marketplace is a multibillion dollar industry, however, the majority of Wisconsin competitors are composed of small privately held organizations which create challenges in obtaining data on both market share and sales. (See Data Table 1) However, I would calculate that the The Rothchild Index (See figure 1) and Competition Ratio (See figure 2) would be less than 0.5 in our industry, however, they would not be zero. Also in comparison, due to the fact that products are brokered through many similar companies with similar products and pricing the Lerner Index would be very close if not equal to 0.00.(See figure 3) The unknown implications of nationalized healthcare combined with the atmosphere of increased governmental regulation in the overall financial services industry within the U.S., has created uncertainty for insurance brokers. This uncertainty has continued to encourage agencies to combine for purposes of integration. The integration occurs by both vertical and horizontal means because each method provides a different advantage. The vertical integration allows entry into a marketplace with immediate expertise that can provide a compliment to existing clients. This method increases value, improves revenue, and limits competitor exposure to the client. In horizontal integration the combined agencies create an economy of scale for both overhead and revenue (commission). As a broker for insurance companies income is derived from commissions. The more business that is brokered with one insurance company the greater the overrides and bonuses. The horizontal integration provides a larger book of business for determination of overrides/ bonuses which increases revenues without increasing fixed costs. The larger books of business generate technological and personnel efficiencies as the fixed costs associated with administration can be spread over larger amounts of policy holders and revenues. Business Insurance Magazine, July 2008
Competitiveness Paper 09/25/2009
Tom Madden
Marquette ID: 005400390
In summary, the insurance brokerage marketplace in WI is a densely populated, highly competitive industry composed of companies that compete for clients utilizing the same if not exact pricing and products. This creates a unique profile in applying our comparative tools for measuring market dominance and pricing behavior. The future opportunities will exist in the differentiation of providing solutions to the problems that companies encounter along with agency integration to maximize efficiencies and revenue overrides.
Business Insurance Magazine, July 2008
Competitiveness Paper 09/25/2009 Figure 1
Tom Madden
Marquette ID: 005400390
Rothchild Index
Brokerage Community Data (Data Table 1)
R = ET/ EF Since a Rothchild Index of 0.0 would indicate a market that is characterized by many businesses offering similar products , I would argue that the insurance brokerage marketplace would be close to the 0.0 point. Not only is this illustrated in a worldwide snapshot, but the local WI marketplace would convey the same data.
Figure 2
Competition Ratio:
The brokerage community worldwide: ($5,527,690,000 + $2,696,480,000 + $1,282,372,080 + $1,282,130,000) / $27,537,960,698 = 0.39 or 39% I believe that the above data can be correlated and is representative of the WI marketplace for the same products. The 39% ratio is indicative of a prevalent, diffuse, and competitive marketplace composed of many different players. Figure 3
Lerner Index
The WI brokerage market is composed of many companies of similar size that compete against each other with identically priced products for the end user. The brokerage houses have limited if any control over the price because they are the intermediary between the insurance company and the consumer. Therefore, the Lerner Index is very close if not approaching 1.0 where: L = P-C/ P Figure 4
Herfindahl-Hirschman Index
The worldwide brokerage community: HHI = 10,000(0.16054102) = 1605.41 The value of 1605.41 is consistent with a market that is composed of a high number of companies offering products to the end user. The above data would also be representative of the WI marketplace. However, I may even expect the WI area to be more diffuse in quantity of brokerage distributors which would lower the HHI number below 1605.
Business Insurance Magazine, July 2008
Competitiveness Paper 09/25/2009
Tom Madden
Business Insurance Magazine, July 2008
Marquette ID: 005400390
Tom Madden
Marquette ID: 005400390
The industry that TIC, Inc. competes within is NAICS coded 524210 as an insurance broker. We provide risk management consulting and brokerage solutions to businesses and individuals. We do not carry an inventory of any material other than paper, intellectual, and personnel capital. The services we provide are usually viewed as necessities by the end user to provide financial protection against an unknown loss. Within our field our target client could be: individuals, businesses with less than 100 employee’s, or a special niche within the agricultural community. The market focus helps to segment us from other competitors in the insurance brokerage community. Our industry would be a combination of a perfect and monopolistic competitive marketplace. Since there is virtually no barrier to entry other than intellectual capital there are many firms in the brokerage arena who provide the same services with the same products with virtually, if not the same, costs and revenues. However, there are a handful of brokers in WI that are larger in size than the majority of competitors that are present. The worldwide brokerage marketplace is a multibillion dollar industry, however, the majority of Wisconsin competitors are composed of small privately held organizations which create challenges in obtaining data on both market share and sales. (See Data Table 1) However, I would calculate that the The Rothchild Index (See figure 1) and Competition Ratio (See figure 2) would be less than 0.5 in our industry, however, they would not be zero. Also in comparison, due to the fact that products are brokered through many similar companies with similar products and pricing the Lerner Index would be very close if not equal to 0.00.(See figure 3) The unknown implications of nationalized healthcare combined with the atmosphere of increased governmental regulation in the overall financial services industry within the U.S., has created uncertainty for insurance brokers. This uncertainty has continued to encourage agencies to combine for purposes of integration. The integration occurs by both vertical and horizontal means because each method provides a different advantage. The vertical integration allows entry into a marketplace with immediate expertise that can provide a compliment to existing clients. This method increases value, improves revenue, and limits competitor exposure to the client. In horizontal integration the combined agencies create an economy of scale for both overhead and revenue (commission). As a broker for insurance companies income is derived from commissions. The more business that is brokered with one insurance company the greater the overrides and bonuses. The horizontal integration provides a larger book of business for determination of overrides/ bonuses which increases revenues without increasing fixed costs. The larger books of business generate technological and personnel efficiencies as the fixed costs associated with administration can be spread over larger amounts of policy holders and revenues. Business Insurance Magazine, July 2008
Competitiveness Paper 09/25/2009
Tom Madden
Marquette ID: 005400390
In summary, the insurance brokerage marketplace in WI is a densely populated, highly competitive industry composed of companies that compete for clients utilizing the same if not exact pricing and products. This creates a unique profile in applying our comparative tools for measuring market dominance and pricing behavior. The future opportunities will exist in the differentiation of providing solutions to the problems that companies encounter along with agency integration to maximize efficiencies and revenue overrides.
Business Insurance Magazine, July 2008
Competitiveness Paper 09/25/2009 Figure 1
Tom Madden
Marquette ID: 005400390
Rothchild Index
Brokerage Community Data (Data Table 1)
R = ET/ EF Since a Rothchild Index of 0.0 would indicate a market that is characterized by many businesses offering similar products , I would argue that the insurance brokerage marketplace would be close to the 0.0 point. Not only is this illustrated in a worldwide snapshot, but the local WI marketplace would convey the same data.
Figure 2
Competition Ratio:
The brokerage community worldwide: ($5,527,690,000 + $2,696,480,000 + $1,282,372,080 + $1,282,130,000) / $27,537,960,698 = 0.39 or 39% I believe that the above data can be correlated and is representative of the WI marketplace for the same products. The 39% ratio is indicative of a prevalent, diffuse, and competitive marketplace composed of many different players. Figure 3
Lerner Index
The WI brokerage market is composed of many companies of similar size that compete against each other with identically priced products for the end user. The brokerage houses have limited if any control over the price because they are the intermediary between the insurance company and the consumer. Therefore, the Lerner Index is very close if not approaching 1.0 where: L = P-C/ P Figure 4
Herfindahl-Hirschman Index
The worldwide brokerage community: HHI = 10,000(0.16054102) = 1605.41 The value of 1605.41 is consistent with a market that is composed of a high number of companies offering products to the end user. The above data would also be representative of the WI marketplace. However, I may even expect the WI area to be more diffuse in quantity of brokerage distributors which would lower the HHI number below 1605.
Business Insurance Magazine, July 2008
Competitiveness Paper 09/25/2009
Tom Madden
Business Insurance Magazine, July 2008
Marquette ID: 005400390
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