Document Type : Case Study
Authors
Department of Economics, Faculty of humanities Sciences, Sanandaj Branch, Islamic Azad University, Sanandaj, Iran
Abstract
BACKGROUND AND OBJECTIVES: Product diversification is a common strategy used by economic enterprises to reduce risk, increase brand strength, maintain market dominance, optimize resource utilization, and increase income and profitability. Although diversification is not a new concept, there is a need for studies that quantitatively analyze the diversification process in more detail. This study aims to categorize products for insurance companies into three groups: competitive or active products, products with competitive potential or active potential, and products without competitive potential or inactive potential. In addition, the study aims to determine the order of potentially active products using greedy, maximum, high grade, low grade and combined strategies to improve the diversification of insurance activities within companies.
METHODS: The present study uses an analytical-descriptive approach in terms of method and a practical approach in terms of purpose. First, the study calculates the revealed relative advantage using five-year average data (2017-2021) of insurance premiums of 29 analyzed companies in 16 areas of insurance activities. It then assesses the diversity of insurance companies by creating a company-product matrix. This matrix is used to calculate the proximity index and visualize the network of insurance products within the country. The product space of the 29 insurance companies is mapped and the position of each company is determined based on the number of different products, diversifiable products and non-diversifiable products. The study then calculates the probability of diversification for products that do not have a relative advantage. Finally, the study uses network science to determine the prioritization of products for diversification and competitiveness based on different strategies.
FINDINGS: The study found that each of the 29 companies studied had different levels of competitive potential in offering insurance activities. A product space encompassing all insurance companies was visualized, and a roadmap for diversifying the scope of insurance activities of these companies based on different strategies was established by applying network science.
CONCLUSION: Privatization of the Iranian insurance industry started in 2002 and had a significant impact on the structure of the industry and the behavior of the companies. Product diversification is proving to be a key strategy for insurance companies seeking to increase their competitiveness and profitability. In this study, the number of different products offered by the 29 insurance companies was calculated. It was found that Alborz Insurance Company has the greatest product diversity with 10 products, while the Middle East, Kish, Asmari and Qeshm insurance companies have the least diversity with only one product each. In the study, the insurance products were categorized into active, potentially active and inactive products based on the relative advantage or inactivity of the companies. The product space of the 29 insurance companies was mapped to identify active, potentially active and inactive products. Using path network science and a roadmap, the study identified diversification strategies for insurance companies based on four main approaches: Maximum strategy, greedy strategy, high degree strategy, low degree strategy and a combined strategy (using Berda and Copeland''s methods). The maximum strategy prioritized the products with the strongest links to active products at each stage. For example, New Trade Insurance Company selected life insurance as the top priority for diversification, followed by other types of insurance and driver and liability accident insurance. The greedy strategy selected the products with the highest probability of activation in order of shortest activation time in each phase. The high-grade strategy focused on selecting products with the most connections to other products in the network for diversification, while the low-grade strategy opted for products with the fewest network connections for activation in each stage. The high-level and maximum strategies prioritized activities that would increase competitiveness and allow more products to compete in the product network in the future. Conversely, the greedy and low-degree strategies could lead to lower competitiveness in future activities. The study suggests that the path and roadmap for product diversification may vary across insurance companies, so they may pursue short-term strategies (greedy and low degree), long-term strategies (high degree and maximum), or a combination of both.
If one opts for a greedy strategy with a low degree, it is less likely to be competitive in the product network in the future.
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