Analyzing the competitive position of the Bolivian insurance industry by applying any of the generally accepted and proven methodologies of some of the international organizations such as the World Economic Forum, ECLAC (Economic Commission for Latin America), etc., turns out to be inappropriate. if what is intended is to guide the industrial sector on how the degree of territorial endogeneity, integration of specific activities and business management itself, are of capital importance both for economic competitiveness and for development in general. Models based on spurious competitiveness do not allow generating endogenous and sustainable conditions in the medium and long term. since from this perspective, an export orientation of the economic units, at best,it is not a sufficient condition to generate endogenous conditions of growth and development1. The learning processes, different experiences of association and agglomeration of companies, technological development, industrial organization and intra and inter-industry trade, among others; have led to stressing the importance of "territorial endogeneity", business strategies, and systemic competitiveness. In this dimension, the competitiveness of companies, regions and countries depends both on the sphere of transformation and on their forward and backward linkages as a whole. This and the following reasons are intended to justify the non-application of the known methods, in the analysis of the competitiveness of the Bolivian insurance industry:
- The methods used by international organizations, such as the World Bank, ECLAC, etc., are not fully adjusted to the industry under analysis, as these approaches to competitiveness attempt to explain how the macroeconomic and microeconomic dimensions complement each other to generate the conditions of productivity that They allow for a successful and sustained participation in international markets. The central axis of these approaches is export capacity, and how sectors of a country's internal economy contribute to the gain or loss of international markets. The core of these methods of analysis is that they focus on substantiating and demonstrating that the causes of the progress of nations depend mainly on international trade, as the British economist Alfred Marshal2 put it.The insurance industry in general is not exactly an industry oriented to globalizing export processes, although it is to the internationalization of its operations, but not at all to the export of insurance products destined to obtain profits or losses from international markets. Furthermore, it is a general rule and regulation of the insurance market in application in the different countries, the territory of insurance operations, preventing or at least hindering cross-border trade in insurance activity, independent of the internationalization of insurance companies that may settle in different countries of both hemispheres.
- Under the methods already known in determining competitive capacity, many critical factors weigh that need to be taken into account. Some of them say a relationship in the repetition of quantitative analyzes that conclude with highly correlated and already known results with other methods in use, such as the GDP of nations, which already shows signs of the competitive capacity of nations in terms of its capacity for growth. Thus a competitiveness ranking applying the classic models already known, as many critical authors of these models say, turns out to be something like "more of the same". Another factor of strong criticism of these methods is the qualification of strict spurious competitiveness that does not explain the results obtained or take into account the tremendous structural inequalities,cultural, geographical that are not incorporated as relevant components of the competitive efforts made by companies within their own economies that compete in unequal conditions, in the world concert.
Taking these considerations into account, the analysis of the competitive capacity of the Bolivian insurance industry will not be carried out on models that do not fully conform or contribute objectively to the empirical knowledge of the competitive position of the insurance sector, but rather through the application of a sector benchmarking 3. This is a methodology developed as a product of academic work that seeks to stimulate reflection on novel conceptual frameworks, possible alternatives for tackling problems, and suggestions for the eventual implementation of management control policies and business strategies that improve the competitive capacity of productive sectors, in no case intends to replace the other models,if not, rather, provide an initial diagnostic mechanism at the micro level (baseline or benchmark) to correct, give greater precision, or better focus management and business strategies on competitiveness, and subsequently monitor and evaluate the advance or decline of productivity. and competitiveness in the Bolivian insurance industry.
As indicated by Arnoldo Hax of the Massachusetts of Technology MIT and Nicolás Majluf of the Universidad Católica de Chile4, the essence of benchmarking is to compare the performance of the company with challenging parameters. These can be generated by: a) internal historical comparisons, b) comparisons with key industry competitors and b) measurements with the best in each functional activity.
Thus presented the situation, the competitive analysis of the Bolivian insurance industry will be carried out under this central axis, whose benchmark or benchmark involves the idea of building an index for four competitive factors considered standard, which compared to "challenging parameters" or benchmark for the industrial sector, allows to establish its competitive position and the dimension of competitive gaps, which are expected to guide the insurance companies that are part of this industrial sector, towards the priority and direction of the management effort that the areas that have a decreased performance compared to this "competitive ideal".
For the analysis, four competitive factors considered standard have been established, the description of which is as follows:
- Profitability Factor - Financial Management. Competitiveness factor that reflects the Financial Management capacity of the insurance industry in the correct use of investment resources and the level of satisfaction given to its clients, who reward them by granting higher returns for the services received.It comprises two dimensions or sub-indexes of profitability weighted according to the ability to control and influence the results. Productivity Factor - Operational Management. This competitiveness factor analyzes the capacity of Operational Management in increasing the production of the insurance industry. It comprises two dimensions or sub-indexes weighted according to their influence on the determination of results. Risk Factor - Strategic Management. Competitiveness factor that analyzes the result of the Strategic Management that the industry has followed in managing the risk and quality of its investment portfolio, composition of its client portfolio, structure, training and experience of its management teams and level personnel medium, intermediate and basic Efficiency Factor - Operational Management.Competitiveness factor that analyzes the Operational Management relative to the efficiency in the administrative expense to produce each production unit in the insurance industry.
The starting point for the establishment of sectoral benchmarking is the definition of the relative magnitudes that transformed into statistical values of contrasts, that do not resort to the classic comparative method focused mainly on international trade; the growth of exports and the loss of opportunities or growth of international markets; establish the baseline or benchmark. In this structure of statistical contrast values, no qualitative aspect is incorporated that contains biases of opinion, but rather statistical numerical data fully validated either by international institutions, government agencies that regulate insurance activity or trade union representative institutions of the insurance sector.This baseline will incorporate in its definition the components of inequalities, picking up the particularities that are characteristic of the structures of the economies that support it, in turn will recognize those relevant factors and that are commonly accepted as key factors of the competitive capacity of the companies.
The structure of the statistical values of contrasts are prepared taking into account the following relevant aspects in their definition:
- For two of its factors, the calculation is made on the maximum values obtained within the national economy in 2003 management. This applies to those competitiveness factors that are substantially dynamic and that are more influenced by contingent policies and less controllable by the components of the industry. The dynamic nature of these factors leads us to consider, as a baseline or benchmark, those most recent statistical data and those close to the moment of analysis. Likewise, it induces the influence that the dynamism of the contiguous politics exerts on these factors, making them less controllable by those who participate in the industry.
The competitiveness factors incorporated into these considerations are the Profitability Factor and the Risk Factor.
- In the case of two of the other factors, it is calculated on the values obtained from statistical data recorded by the Latin American insurance industry made up of 19 countries in the region. Situation that applies, for those competitiveness factors that are more due to internal policies of the actors and therefore more controllable by each one of the components of the industry. The characteristic of certain control and influence on these competitive factors induces to consider a broader statistical period to determine the baseline or benchmark of these competitive factors.
The competitiveness factors incorporated into these considerations are the Productivity Factor and the Efficiency Factor.
Under this conceptual framework, the competitive analysis process of the insurance industry is carried out using the following methodology:
- Determination of statistical contrast values (baseline or benchmark), Determination of statistical values for the industry. Normalization of both values. Determination of the competitive position of the industry. Determination of the competitive gap of the industry.
3.6.1.-Determination of statistical contrast values (Vec)
(baseline or benchmark).
According to the aforementioned considerations, the statistical contrast values Vec, sector benchmark or baseline, for each of the competitive factors considered in the competitiveness analysis of the Bolivian insurance industry, are determined using the following calculation methodology:
Profitability Factor - Financial Management: Factor made up of two sub-indices, the first whose baseline or benchmark for this factor corresponds to the highest return on equity obtained by one of the 100 largest companies in Bolivia, according to the financial statements corresponding to the 2003 management validated by the SII This corresponds to the company Seguros Provida who obtained a return on equity equal to% 21.69.
The second sub-index corresponds to the highest return on investments obtained as of December 31, 2003 by the FCI individual capitalization funds managed by the Pension Fund Administrators AFP in the open stock market and which corresponds to a return of 10.27%, rate to which is added a risk-free rate ά of 2%, which makes up this sub-index at a more competitive and differentiating level of profitability for the industry.
With the data from these two subscripts, the statistical value of the contrast is constructed, weighting 30% as weight relative to the first subscript and 70% the second subscript. Weighting assigned based on the lower or higher competitive requirement that both sub-indexes would grant. The formula for determining this statistical contrast value remains:
Vec1 => Rsec = (r / p) * 0.3 + 0.7
Where: r / p = return on equity => 21.69%
r / i = FCI yield => 10.27%
ά = risk free rate => 2%
Rsec = statistical value of profitability test
Rsec = 21.69% * 0.3 + (10.27% + 2%) * 0.7
Vec1 => Rsec = 15.10%
Productivity Factor - Operational Management. This competitiveness factor is made up of two sub-indices. The first determined how a percentage relationship between the total annual production of the insurance market versus the percentage resulting from the combination of two data; the index of density or per capita expenditure on insurance on the per capita income of the inhabitants of the region. The latest available data records for Latin America a density index of US $ 65 and the per capita income of the Latin American region at US $ 7,050, resulting in a percentage value of 0.92%
With the data from these two sub-indices, the statistical contrast value is constructed, weighting 30% as weight relative to the first subscript and 70% the second subscript. Weighting assigned based on the lower or higher competitive requirement that both sub-indexes would grant. The formula for determining this statistical contrast value remains:
Vec2 => Psec = ipl * 0.3 + (idl / pc) * 0.7
Where: ipl = Latin American penetration index => 2.03%
idl = Latin American density index => US $ 65
ip = Latin American per capita income => US $ 7,050
Psec = statistical value of productivity contrast
Psec => 2.03% * 0.3 + (US $ 65 / US $ 7,050) * 0.7
Vec2 => Psec = 1.3%
Risk Factor - Strategic Management. The determination of the baseline or benchmark for this competitiveness factor is established in a linear manner assuming that the highest competitive capacity is obtained with the highest risk rating regarding the composition of the client portfolio, application of investment resources, and in general in all the usual components that the risk rating agencies take into account. Companies that, in the case of the Bolivian insurance industry, correspond to organizations with an international profile and recognized prestige in the environment.
With this vision, the statistical contrast value is constructed by assigning 100 percentage points to the maximum triple A risk rating.
Vec3 => CRsec = pr
Where: pr = risk score => 100%
CRsec = statistical value of risk contrast
CRsec = 100%
Vec3 => CRsec = 100%
Efficiency Factor - Operational Management This competitiveness factor includes two sub-indexes and their corresponding percentage correlation. The first sub-index corresponds to the average administrative expenses incurred to achieve the production of insurance in a statistical period of the last 4 years in 19 Latin American countries. This statistical record is located in an amount of US $ 5,814 (thousands of dollars). The second sub-index corresponds to total insurance production achieved in Latin America in the same statistical period for the same countries considered in the previous sub-index. Statistical register located at US $ 39,994 (thousands of dollars).
With the data from these two sub-indices, the statistical value of contrast is constructed, which results in the following terms:
Vec4 => Esec = gal / ptl
Where: gal = administrative expense Latin America => US $ 5,814 (M $)
ptl = total production Latin America => US $ 39,994 (M $)
Esec = statistical value of efficiency contrast.
Esec => US $ 5,814 / US $ 39,994
Vec4 => Esec = 14.54%
SECOND PART
3.6.2.- Determination of the statistical values for the industry (Vei).
Following a similar procedure used to determine the sector benchmark or baseline, the statistical values for the industry corresponding to each of the competitive factors considered in the analysis are determined:
Profitability Factor - Financial Management: Factor made up of two sub-indices, the first corresponds to the profitability on equity obtained by the Bolivian insurance industry in 2003 management. Calculation obtained by consolidating the balance sheets and income statements 2003 corresponding to each of the 13 general and financial insurance companies as well as people who operate in the industry. Statistical data whose record was 9.11%.
The second sub-index corresponds to the return on investments obtained by the industry in 2003 management. Calculation also obtained through the consolidation of the financial statements of both general and surety insurance companies and people operating in the industry. The statistical record of this data was 5.54%.
With the data from these two sub-indexes, the statistical value of the industry is constructed, weighting 30% as weight relative to the first sub-index and 70% the second sub-index. Weighting assigned based on the lower or higher competitive requirement that both sub-indexes would grant. Its determination results from the following calculation:
Vei1 => Rind = 0.3 + * 0.7
Where: u = industry profits => US $ 6,673 (Thousands US $)
p = industry equity => US $ 73,690 (Thousands of US $)
pi = industry investment products => US $ 17,753 (Thousands of US $)
i = Industry investments => US $ 320,414 (Thousands of US $)
Rind = Statistical value of industry profitability
Rind => * 0.3 + * 0.7
Vei1 => Rind = 6.61%
Productivity Factor - Operational Management. Competitiveness factor made up of two subscripts. The first was determined as the penetration index derived from the percentage relationship between the total annual production of the insurance market versus the gross domestic product of GDP, a figure that for the Bolivian insurance market stands at 1.18%. The second subscript corresponds to the percentage obtained from the combination of two data; the index of density or per capita expenditure on insurance on the per capita income of the country's inhabitants. The latest available data records for Bolivia a density index of US $ 12.31 and the country's per capita income US $ 2,300.
With the data from these two sub-indexes, the statistical value of the industry is constructed, weighting 30% as weight relative to the first sub-index and 70% the second sub-index. Weighting assigned based on the lower or higher competitive requirement that both sub-indexes would grant. The formula for determining this statistical value of the industry remains:
Vei2 => Pind = ipn * 0.3 + * 0.7
Where: ip = national penetration index => 1.18%
idn = national density index => US $ 12.31
icn = national per capita income => US $ 2,300
Pind = statistical value of the industry
Pind = 1.08% * 0.3 + * 0.7
Vei2 => Pind = 0.7%
Risk Factor - Strategic Management. To determine this statistical contrast value, it was first necessary to construct a table that assigns a similar score to each type of risk rating used by the Bolivian Superintendency of Securities and Insurance SPVS, starting from 100 points for the triple A rating (AAA) down to 5 points for a type E rating (see annex), each of the two sub-index considered in the determination of the statistical value of the industry, will make use of these assimilated scores, obtained from the “Table of Assimilated Scores ”Which is detailed in the corresponding annex.
The first sub-index corresponds to the score assimilated to country risk, whose risk rating for Bolivia is “D” - there is no payment potential or recovery capacity - The assimilated score for this sub-index is 8 points.
The second index corresponds to the assimilated score of the national insurance industry obtained; first, from the assimilation of the score corresponding to all the risk ratings obtained by each of the 13 companies that operate in the national market and then from a weight based on the equity of each one, to determine a certain relative weight in the rating obtained by each insurance company. The assimilated score of this resulting subscript is 91 points, according to the detail in the “Assimilated Score Table”.
With the data from these two sub-indexes, the statistical value of contrast is constructed, weighting 30% as weight relative to the first sub-index and 70% the second sub-index. Weighting assigned based on the lower or higher competitive requirement that both sub-indexes would grant. The formula for determining the statistical value of the industry is as follows:
Vei3 => CRind = pa1 * 0.3 + pa2 * 0.7
Where: p1 = country risk assimilated score => 8
P2 = assimilated score for industry irrigation => 91
CRind = Statistical value of the industry
CRsec = 8 * 0.3 + 91 * 0.7
Vei3 => CRsec = 66%
Efficiency Factor - Operational Management The statistical value of the industry is established by the percentage correlation between two sub-indices. The first corresponding to the administrative expenses incurred to achieve the production of insurance in 2003 management, whose statistical record is located in an amount of US $ 35.7 (thousands of dollars) and the second corresponding to the total production of insurance achieved in the same period statistical. Statistical register located at US $ 165.2 (thousands of dollars).
With the data from these two sub-indices, the statistical value of the industry is constructed, which results in the following terms:
Vei4 => Eind = gal / ptl
Where: gal = administrative expenditure Latin America => US $ 35.7 (M $)
ptl = total production Latin America => US $ 165.2 (M $)
Eind = Statistical value of the industry
Eind => -100 * -1
Vei4 => Eind = 51%
3.6.3.- Normalization of values and determination of competitive factors.
Both the records obtained in the determination of the statistical contrast values (baseline or benchmark) and the statistical values of the industry must be normalized to assimilate them to a scale of points from 0 to 100 that allows comparatively defining the level of competitiveness for each of the factors and its competitive gap with respect to the statistical values of contrast, baseline or benchamark.
The normalization will be made by means of a simple rule of three, always placing the statistical value of contrast as the highest score in the table equivalent to 100 and determining by this rule, its correlated value.
Under this scheme and procedure the score is obtained for each of the factors of
Under this scheme and procedure, the score is obtained for each of the competitiveness factors of the industry.
3.6.3.a).- Profitability Factor Score - Financial Management.
3.6.3.b).- Productivity Factor Score - Operational Management.
3.6.3.c).- Risk Factor Score - Strategic Management.
3.6.3.d).- Efficiency Factor Score - Operational Management.
3.6.3.e).- Summary of the values obtained.-
Table # 11.- Results of the Competitiveness Factors.
3.6.4.- Determination of the competitive gap of the industry.
Having already determined the scores obtained by the insurance industry for each of the competitiveness factors under analysis, we can establish the competitive gap based on the baseline or benchmark that has previously been determined.
It deserves a comment or reaches the score determined in terms of the Efficiency factor that turns out to be higher than the baseline or benchamark. In this case, an excess of more than 49 points with respect to the statistical value of the contrast is shown, which given the evaluated subscript corresponds to an item of expenses (administrative expenses) is an indicator of less efficiency in terms of the resources allocated to achieve a production unit of the industrial sector. In relative terms, it has reached a level of efficiency with respect to the baseline of only 51 points.
Table # 12.- Competitive Gap of the Industry
3.7.- Results of the analyzes.
The competitive analysis of the Bolivian insurance industry has been carried out under four approaches, a structural analysis of the industry, the analysis of its attractiveness, a technical-financial analysis and finally an analysis of the competitive position. In all these analyzes, the methodological basis provided by Michael Porter in his various treatises that he has written on the subject of competitiveness has been followed. The exception corresponds to the analysis of the competitive position, whose methodology does not correspond to Michael Porter, but has been carried out incorporating innovations with respect to two central ideas: a) regarding a “baseline or benchamark” and b) the establishment of competitive gaps on the basis of a "competitive ideal".
Both central ideas were obtained from a work published under the title "Analysis of the Global Report on Competitiveness for Central America". 1999, written by Phd. Eduardo Doryan Garrón, director of the Latin American Center for Competitiveness and Sustainable Development CLADS, INCAE professor Francisco de Paula Gutierrez and Grettel Lopéz, researcher and consultant for CLADS. Although this work is based on the Global Competitiveness Report prepared under the methodology of the World Economic Forum WEF (acronym in English), it focuses the analysis on a competitive ideal or closer to Latin American reality, structuring an analysis whose basic ideas have been used here, incorporating innovations that allow them to be adjusted to the purpose and objective of this work.
The idea of the benchmark as a measurement tool regarding management control has also been very succinctly explained by Arnoldo Hax and Nicolás Majluf in their book "Strategy for Competitive Leadership", highlighting that the idea of "benchamarking" is to compare the performance of the company with challenging parameters. Idea that has also been incorporated into the structured work methodology in the Bolivian Productivity and Competitiveness System (SBPC) program.
Innovating on these central ideas and faced with the manifest impossibility of using those already known from the World Bank, ECLAC, etc., a methodology is developed that has allowed determining a competitive position of the Bolivian insurance industry, thus fulfilling the purpose of this work.
The results of each of the aforementioned analyzes are summarized in the following terms:
1. Structural Analysis of the Industry. The intense rivalry between the components of the industry, the strategy of competing in price and not in differentiation, added to the situation of the tremendous power granted to buyers and the motivation to change, reveals the main flaw of the Bolivian insurance industry. The industry has fallen into the “primary product syndrome” 5, since the offer in the insurance market is not differentiated, granting tremendous bargaining power to direct buyers or intermediaries by competing entirely on the basis of price. Added to the fact that it does not count as an industry, with a philosophy of homogeneous competitiveness, it makes the Bolivian insurance industry a highly fragmented sector and vulnerable to a more globalizing competitive scenario.
2. Analysis of the Attractiveness of the Industry. The general assessment of the attractiveness of the Bolivian insurance industry is currently in a position of little attractiveness, sustaining its growth to external factors of government support, rather than the competitive capacity of the industry itself. It shows clear deficiencies in creative and innovative capacity due to the low specialization of its human resources, a deficiency that is reflected financially in a modest profitability index.
The analysis of the future projection of the industry places it in an attractive medium, highly dependent on social and political factors, with a moderately attractive growth potential.
3. Technical Financial Analysis. The analysis shows quantitatively an economic-financial situation in equilibrium derived fundamentally from the application of sector regulation mechanisms exercised by the SPVS Superintendency of Securities and Insurance, basically from the application of a "solvency margin". It is clearly shown that the insurance activity is an eminently financial intermediation activity, since they are the returns obtained in the investment products that revert year after year the operational losses that the statements of results of the insurance companies operating in the industrial sector and that allows you to obtain a positive EVA in the analysis.
4. Analysis of the competitive position. In a competitive analysis of the Bolivian insurance industry using a sector benchmark methodology, results are obtained that establish competitive gaps of relative magnitude in each of the four competitive factors considered in the study. The competitive position of the Bolivian insurance industry is perhaps a reflection of the context in which it manages. However, in general, their competitiveness factors are slightly above the average with respect to the baseline or benchamark, having the largest competitive gap in the competitive factor of profitability, which is explained by the intense rivalry of the participants of the industry that the has led to price competition,this despite being a growing industrial sector where there are opportunities for all industry participants and have a favorable concentration and balance. The smallest competitive gap is obtained from the risk competitiveness factor, which is explained by the application of regulations of the Superintendency of Pensions, Securities and Insurance SPVS, which are aimed at reducing risk to guarantee in some way, capacity and solvency. financial of the insurance system.the capacity and financial solvency of the insurance system.the capacity and financial solvency of the insurance system.
Summary and Conclusions
In summary: From the competitive analysis of the Bolivian insurance industry, we can obtain the following summary that is outlined in the table below:
Conclusions: In the context, the Bolivian insurance industry in this period faces a difficult situation in social and political terms, while maintaining a stable economy. The country has not yet built the institutional, technological and macroeconomic bases to achieve adequate international insertion. Its potentials are latent and awaiting a course change that will better position it in the international concert.
The Bolivian insurance industry manages in this context nothing conducive to developing more and better competitive capabilities. However, if the proposal of Patricio del Sol6 is taken into account, its competitiveness (at least in the profitability factor) depends more on appropriate decisions than on the context where the business or industry operates. What translates according to this author, in the design of creative business strategies, which ultimately lead to obtaining the best levels of profitability and competitiveness within the industry.
These creative business strategies, according to the position of many authors that refer to the topic of strategy development, must necessarily incorporate an analysis of the industrial sector where the business operates that allows it to identify opportunities and threats in the markets in which the company competes., analysis that aims to somehow be delivered in this work. Work that also; using the benchmarking tool, it provides a methodological analysis tool that as an initial diagnostic mechanism at the micro level (baseline or benchmark) would allow correcting,to give greater precision or better focus the direction and management policies that improve the competitive capacities of the industry and thus culminate in a positioning that is closest to the “challenging parameters” established by the sector benchmark.
This work, which aims to become a useful tool for all of them, in preparing their business strategies, is then available to the insurance companies that make up the Bolivian insurance industry.
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1 Krugman, 1991; Myrdal, 1957, Rodrick, 2000; Romer, 1993.
2 Alfred Marshal British Economist in "Principles of Economics"
3 With relative similarity to the work done by: Phd. Eduardo Doryan Garrón, director of CLADS, Francisco de Paula utierrez, professor at INCAE and Grettel Lopéz, researcher and consultant at CLADS in: “Analysis of the Global Report on Competitiveness for Central America”.
4 In his book "Strategy for Competitive Leadership" - From vision to results - Dolmen Editions 1997.
TP5 Definition: “Product or service that cannot be differentiated” Pag 102 - Strategy for Competitive Leadership. Arnoldo Hax and Nicolás Majluf 1997.-
TP6PT P. Del Dol "Winning without Competing" - 2004 Ediciones Aguilar - Chile
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