Insular Life

I. Introduction

Company Profile

The mission of Insular Life is to provide a full-range of high-value insurance products and other related services that empower families to attain financial security and fulfill their dreams, thus helping build a stronger Philippines. They enable their professional, customer-oriented employee and agency force to render service of the highest quality. They are experts in our core business, and they operate with excellence at all times to optimize stakeholder value. They continuously pursue strategic opportunities, and achieve sustained growth through dynamic marketing, prudent investments, and exceptional service.

Brief History of the Company

Insular Life was established on November 25, 1910 at a time when the Philippines was flexing its wings as a fledgling nation at the dawn of the 20th century. Today, as the Philippines’ leading and largest Filipino life insurance company, Insular Life prides itself with its role in securing the lives of Filipinos families for close to a century. Its roster of products — from its ordinary whole life, endowment, limited-payment, college education and insurance plans, to pension and investment plans — not only offers the best cost- benefits ratios among insurance plans in the market. More importantly, these are designed to allow individuals to wield control over their and their family’s financial security.

II. Abstract

The research aims to diagnose the company in an organizational level. Diagnosing in an organizational level includes analyzing its general environment, industry structure and design components which compose the company’s strategy, technology, structure, measurement system, human resource system and organizational culture. Based on the diagnosis, the researchers will recommend possible interventions and eventually choose the best intervention.

III. Problem Identification and Selection

Insular Life is exemplary in their organizational effectiveness. There is a good alignment as diagnosed and analyzed by the researchers. The only problem that the researchers can see is the alignment between the environment inputs and strategic orientation

IV. Analysis of the Present System

General Environment

Insular Life is the Philippine’s leading and largest Filipino life insurance company. Socially, they take pride in securing the lives of Filipino families and providing them with the means to successfully plan for and achieve their family’s financial security. Politically, Insular Life adheres to the international corporate governance principles of fairness, accountability and transparency through their core values. In Europe, insurance companies still face with political and macroeconomic uncertainty, hurting investor, consumers and corporate balance sheet. While on the other side of the world they saw the fast growth of Asia Pacific region economies.

Technologically, Insular Life enhanced relations with its customers through Cisco Unified Communication, in which customers anywhere in the country will have just one local toll-free number to call and will be able to reach an Insular Life staff member or agent faster. Trends and technology will replace the old private branch access system that Insular Life used to rely on. Economically, Insular Life contributes to raising industry standards and issues that affect the insurance public. Insular Life promotes fair treatment of any kind and offers equal opportunities in all aspects of employment and advancement, regardless of age, gender, age, marital status, sexual orientation, disability, religious and political beliefs. Ecologically, Insular Life embarked on the environmental conservation.

Industry Structure

First, the threat of entry is low. It is difficult for new competitors to enter into the market because there is a high barrier to cross if the organization wanted to get into life insurance industry. These barriers are Insular Life, Phil-Am Life, Sun Life and Great Pacific Life, because customers are loyal to the existing brand, must have a high capital requirement and new entrant have smaller economies of scale. Second, threat of substitute product is high. In the insurance industry as there are plenty of substitutes available in the market. Many of the firms offer the services that are similar to that of large companies. There exists high level of competition on all the grounds whether it is auto insurance or health insurance. There are companies operating in the markets that offers unique products and services to their customers and have competitive advantage over their counterparts which depends on the size of their business segments.

Third, bargaining power of supplier is low. The supplier of capital does not pose a big threat to the organization. The bargaining power of suppliers is derived by their power to demand the prices of their own choice. The supplier’s power in the insurance industry is not a big threat to the companies operating in it. But the threat suppliers taking away human capital does exist in the industry. This industry is entirely based on the human capital. Fourth, bargaining power of buyers is medium. The individual buyers do not have much power to influence the insurance industry at large. The large corporate clients and other related businesses pay large sums of money as health insurance premium to these companies.

These market players in the insurance industry long to get high margin corporate clients. The company offers individual and group life, health, and retirement insurance plans. It provides allied financial services such as general insurance, banking, healthcare, lending and investment through subsidiaries and affiliate companies in its eponymous corporate group. Given that the company offers various products, the customers want to have a safe and trusted life plan for themselves and their family that are costly and meets the price they are willing to pay. Lastly, rivalry among firms is high. There are a lot of well-known insurance company in the Philippines that offers different products and services that the customers need – Phil-Am Life and Sun life is its top competitors in the Philippines.

Porter’s Five Forces Analysis: Insular Life

Strategy

Since Insular Life is a service company, their employees are the most important resource. Based on the interview, the top management includes marketing because the life of the company relies solely on their marketing strategy and human resource. Insular Life only employ regular employees in their offices and the rest are sales agents. These sales agents are responsible for selling and offering the company’s products and services to potential buyers. According to Mr. Parungao, the most important strategy to achieve success is good interpersonal skill. The Chairman of the Board and CEO of Insular Life, Vicente R. Ayllón, is preeminent in this kind of skill. According to Mr. Parungao, Mr. Ayllón at the age of 85 is affable and down to earth person. The company has a Code of Conduct – complementary to the Manual on Corporate Governance – which Trustees and employees use as guides for proper conduct of their duties.

All Trustees, Officers, and employees are required to comply with this Code. The Code covers provisions on their guiding principles, policy on conflict of interest, general rules on personal behavior in the Workplace, and the disciplinary actions that may be instituted in cases of violations or breaches. On the part of the Board of Trustees, they likewise undergo a rigorous annual assessment of their performance as (1) an individual Trustee, (2) as a member of the Board Committee, and as (3) a member of the Board as a whole. As one of the top life insurance companies in the country, Insular Life also contributes to raising industry standards and issues that affect the insurance public.

Technology

The company does not invest in equipment because it is not a manufacturer. Insular Life basically improves their existing products and services. Being a life insurance company, Insular Life must invest on a technology that best suits their kind of business. Insular Life has unique systems used to track insurance policies, customer records, death claims, payments to beneficiaries, amortizations, and other records necessary in doing their business. Also, one of the members of the Board must be an actuarial science expert. Actuaries mathematically evaluate the probability of events and quantify the contingent outcomes in order to minimize the impacts of financial losses associated with uncertain undesirable events. Since many events, such as death, cannot be avoided, it is helpful to take measures to minimize their financial impact when they occur.

Actuaries of Insular Life forecast the probability of death in a year so that they can estimate their profit or loss for the year. Insular Life supports and promotes fair and transparent supplier selection practices. The company conducts its own accreditation and selection practices and ensures that they conduct business only with reputable persons and entities. Should a business transaction of material nature be related to an Officer or Trustee of the Company, prior approval of the Board is required and that the business should be conducted on an arm’s length basis in compliance with the Company’s By-Laws and the Manual of Corporate Governance.

Structural System

In pursuit of their corporate mission, they are guided by our core values of: Love of God and Country, Integrity, Excellence, Prudence, Respect for the Individual, and Teamwork. Good corporate governance remains to be at the core of the company’s operations. It is ingrained in the policies, systems, processes and procedures as the company continues to pursue further productivity and growth.

Insular Life is a mutual life insurance company in the Philippines, the company offers individual and group life, health and retirement insurance plans. It provides allied financial service such as general insurance, banking, healthcare, lending and investment through subsidiaries and affiliate companies in its eponymous corporate group. Insurance Life grant annuities, immediate or deferred, payable between any fixed dates or contingent as to their commencement or determination upon any event dependent upon human life or the birth or failure of issues or otherwise Insular Life is compose of groups: Insular Health Care, Insular Investment Corporation, and Home Credit Mutual Building and Loan Association.

Insular Health Care was formed in response to the widespread demand for timely, effective, comprehensive and yet affordable medical care. Insular Investment Corporation is the investment house of Insular Life, it focused on corporate finance activities that include loan arrangement and syndication, underwriting, financial advisory, mergers, acquisition and divestitures, private placement and joint ventures. Home Credit Mutual Building and Loan Association primarily offers contract savings for home ownership.

Insular Life, as a non-stock mutual life insurance company, does not have stockholders to whom dividends are paid as return on their investment. Instead, members of the Company, who are owners of participating insurance policies as provided in the Company’s By-Laws, receive policy dividends, if and when they are allocated, as return of their premiums paid. The amount of policy dividends allotted to the policyholder-members is determined based on a set formula as approved by the Board in accordance with the Company’s By-Laws.

Measurement System

The management of The Insular Life Assurance Co., Ltd is responsible for the preparation and fair presentation of the financial statements for the years ended, including the additional components attached therein, in accordance with Philippine Financial Reporting Standards. This responsibility includes designing and implementing internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances.

The Company encourages individuals to report or call the management’s attention about any suspected or actual breaches or violations of law, regulation, Code of Conduct or other company policies. The Company ensures that all reports received will be treated with utmost confidentiality and that the identity of all those who shall make the foregoing report in good faith shall be strictly protected from any form of retaliation, in compliance with the Company’s Code of Conduct.

Human Resource Systems

Insular Life promotes fair treatment of any kind and offers equal opportunities in all aspects of employment and advancement, regardless of gender, age, marital status, sexual orientation, disabilities, and religious or political beliefs. This also applies to their agency force, the self-employed and contractual workers who work for them. The company also offers different compensations and benefits to their employees through the evaluation of each employee based on their individual accomplishments as measured against their job responsibilities as well as the performance of the business unit or the company as a whole. The company also offers their employees incentives to the children to aspire excellence. Every year, children of Insular Life employees with the 90 percent average in their entire high school years could have the 5 scholarship grants being offered under The College Scholarship for Insular Life Employees Dependents.

The scholarship covers full tuition, miscellaneous fees and book allowance. The company recognizes and rewards and employees for their outstanding achievements within and outside the organization. Employees who display exemplary job performance and high level of competence to fulfil the responsibilities of a higher position are the best candidates for promotion. They also value the loyalty and commitment of the employees to the company through their years of service. When it comes to training and development of the employees, the Insular Life provides a range of training programs designed to hone the skills and capabilities of the employees in carrying out their daily duties, as well as preparing them to assume high responsibilities as the next leaders of the organization. A key focus of the training is the Executive Development Program. Key executives of the company are sent to attend Management courses here and abroad to facilitate the advancement from being a specialist to a generalist.

Organizational Culture

Insular life is guided by their core values, love of god and country, integrity, excellence, prudence, respect for the individual and teamwork. The company’s ultimate fulfilment comes from knowing that they have contributed to improving the lives of the Filipinos by financially securing their future. They honor God by touching lives through sharing financial, human and intellectual resources. The company also ingrains honesty and uprightness in everything they do by conducting a business according to the highest moral and ethical standards, rendering to all their stakeholders of what is rightfully due to them.

The company espouse deep sense of responsibility for their work and seek continuous improvement for their people and processes. They value the trust given by their customers and ensure that they exercise fiduciary care in all their dealings. Insular life also recognizes that every individual is unique and possesses a distinct worth which contributes to the organization’s value. They help each individual realize his fullest potential as a person by providing the environment for constantly increasing knowledge and broadening his experience. Teamwork is also very important for the company’s culture because it recognize the success of the business through its people. The collective efforts of the people facilitate the achievement of short and long-term goals. The company continually promote and strengthen camaraderie as well as unity among their workforce.

V. Identification of the Root Controllable Causes

Alignment between environmental inputs and strategic orientation

a. Tight competition in the insurance industry

Strategy of cost leadership and differentiation

b. Unavoidable document manipulation

Operational effectiveness strategy

Alignment of the design components

a. Marketing and human resource strategy

Better advertising result for selling and offering company’s product and service for customers

b. Unique technological system

Used to track insurance policies, customer records, death claims, payments to beneficiaries, amortizations, and other records necessary in doing their business. c. Decentralized divisional structure

Focused on the different service lines.
d. Consolidated measurement system

Design and implement internal control of financial statements that are free from material misstatement e. Fair human resource system

Equal opportunities in employment and advancement
f. Culture guided by their core values

Promotes love of god and country, integrity, excellence, prudence, respect for the individual and teamwork

VI. Selection of the Best Alternative Solution

Insurance industry in the Philippines has tight competition. The top life insurance companies in the Philippines include Insular Life, Phil-Am Life, Sun Life, and Great Pacific Life. Given the tight competition and almost the same products and services, Insular Life must develop and improve its products and services offered to create a competitive advantage. There are two strategies that the researchers can think of to create a competitive advantage: cost leadership strategy and differentiation strategy. A cost leader is where the company has decided to create the cheapest product on the market. This strategy requires the product to be commoditised and take advantage of the economies of large scale. Usually there can only be one cost leader within an industry. If the company chooses the cost leader strategy, it must ensure that the product meets the minimum requirements of the market.

If the product does not meet these requirements, the company will be forced to drop the prices even lower. On the other hand, differentiation strategy is where a company decides to choose a certain attribute of the product to focus on. In order to make this strategy work, management have to select an attribute that a big enough section of the market care about enough in order to pay a premium price for the product. Differentiation involves making the products or services different from and more attractive those of your competitors.

To make a success of a differentiation strategy, organization’s needs (1) good research, development and innovation; (2) ability to deliver high quality products or services and (3) effective sales and marketing, so that the market understand the benefits offered by the differentiated offerings. Large organizations pursuing a differentiation strategy need to stay agile with their new product development processes. Otherwise, they risk attack on several fronts by competitors pursuing Focus Differentiation strategies in different market segments.

VII. Solution Implementation

Four stages of differentiation strategy:

Stage 1: Your Strategic Snapshot

The first step is to do a quick but comprehensive review of your business against the five pathways to profit to high key issues which need to be focused on and which issues don’t require detailed assessment.

Stage 2: Your Differentiation Analysis

Involves taking a detailed look at your business, your customers and your competitors and then thinking about how things might change in the future.

Stage 3: Your Differentiation Option and Strategy

Involves clarifying your potential differentiation options and deciding which to choose.

Step 4: Communicating Differentiation Strategy

Involve communicating your new differentiation strategy to your staff and to the market. The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are not unique, and that other competitors copy cost reduction strategies. This is why it’s important to continuously find ways of reducing every cost. One successful way of doing this is by adopting the Japanese Kaizen philosophy of “continuous improvement.” Some of the ways that firms acquire cost advantages are by improving process efficiencies, gaining unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions, or avoiding some costs altogether. There are two main ways of achieving a Cost Leadership strategy: 1. Increasing profits by reducing costs, while charging industry-average prices. 2. Increasing market share through charging lower prices, while still making a reasonable profit on each sale because you’ve reduced costs.

VIII. Evaluation of Results

Competitive advantage is created by using resources and capabilities to achieve either a lower cost structure or a differentiated product. A company that successfully implements a cost leadership strategy can earn above-average returns even when the five competitive forces are strong. In the event of any of the above, the low-cost leader is challenged to increase value to customers. This may mean reducing prices or adding product features without raising prices. However, if prices are reduced too low, it may be difficult for the company to earn satisfactory margins and customers may resist any price increases. Successful implementation of a cost leadership strategy will result in large favorable growth and price-recovery components, large favorable price-recovery and productivity components, large favorable productivity and growth components and only a large favorable growth component.

Companies that adopt a strategy of differentiation must work to increase the perceived value of their product or service to make them stand apart. Through Differentiation Strategy a company offers a product as unique in industry by proving that it provides a distinct advantage over other products by setting it apart from other competitors’ brand. According to Kotler, “To build a profitable relationship with target customers, marketers must understand customer needs better than competitors do and deliver more customer value.” Through the cost leadership and differentiation strategy, it will gain competitive advantage among its competitors. By having competitive advantage the firm is able to deliver the same benefits as competitors but at a lower cost or deliver benefits that exceed those competing product.

IX. Standardization

X. Self-Evaluation and Future Planning