Aviva Plc Role in the Modern Insurance Field - Assignment Example

? PEST analysis of Aviva PLC Introduction There are many factors that influence the growth of a company and its industry. These can be internal factors like the firm’s technical knowledge, management system, marketing strategies, distribution network and so on. There can also be certain external factors of the surrounding economy that have an impact of the firm’s activities. These external influences can belong to the political, economic, social, technological, environmental and legal domain. This paper has attempted to evaluate the impact of these external factors on the growth and development of the insurance company Aviva plc. Aviva Plc is the sixth largest insurance group in the entire world. It has a huge customer base of 44.5 million, and provides its clients with insurance products and various savings and investment schemes. The major part of the firm’s business comes from Europe where it is one of the pioneering life and general insurance companies. Aviva has developed an elaborate distribution network in the European market to serve over 18 million customers in the continent. The European Union is the world’s largest market for life insurance and pension products and Aviva Plc has harnessed this opportunity to gain a strong foothold over there. The company also happens to be the largest insurance provider in the United Kingdom (Aviva, 2011). Aviva specializes in providing life insurance, general insurance and various pension schemes to its customers. In Europe, it is a leading provider of various life insurance, general insurance and health insurance products. In recent years, the company has rationalized its product offerings in this market and is attempting to merge all its business in the continent under a single head. In 2010, Aviva has identified significant opportunities in the European pension market. The 27 European Union countries including Russian and Turkey had an annual gap between pension and savings of about € 2.4 trillion. The company plans to take advantage of this opportunity expand its pension schemes business in the continent. In UK, Aviva operates as the largest insurance company serving approximately 14.8 million customers. Its portfolio of products includes different insurance schemes belonging to the life, general and health insurance categories. Customers can purchase these products either directly from Aviva, from any of its corporate partners or from any of its intermediary firms. In 2010, Aviva’s life insurance and general insurance business reported a strong performance in the UK market. The sales of its life insurance products increased by 19 per cent from the previous year to ?11,846 million. This resulted in a record level of operating profits of about ? 850 million, which was 26 per cent higher than the corresponding 2009 figures. In the general insurance business, Aviva UK witnessed an increase in its sales during each succeeding quarter of 2010. The profits in this sector reported an annual increase of 8 per cent to € 579 million. Aviva UK, also merged many of its life insurance and general insurance schemes together to provide the customers with innovative products during the year 2010. (Business Summary, 2011) The main share of revenues of Aviva plc is derived from its life and general insurance business and its asset management services. The European Union especially UK comprises the world’s largest markets for life insurance and pension services. Aviva has harnessed this opportunity to emerge as the largest insurance company in UK and the second largest provider in Europe. The company has devised its insurance schemes in such a way so as to simultaneously cater to the interests of the customers and the firm itself. In 2010, UK’s insurance intermediary organizations voted Aviva as the region’s leading provider of life, general and health insurance policies. The firm has also directed its efforts in expanding its main business activities in the North American countries – USA and Canada. The firm has tried to leverage the advantages of both these developed economies to market its insurance schemes to a large number of the local citizens. As a result of Aviva’ strategies, the United States has emerged as an important market for the firm’s life insurance business. In 2010, the company’s IFRS (International Financial Reporting Standards) profits from its life and annuity insurance in the USA recorded a more than double increase. On the other hand, Canada has proved to be a lucrative market for the general insurance activities. The operating profits from this business were reported to be ? 222 million in 2010, which were higher by 54 per cent from the previous year. The countries belonging to the Asia Pacific (APAC) region are also served by Aviva’s insurance facilities. The firm has successfully marketed its life, general and health insurance schemes in these markets with the help of wholly owned companies and joint ventures. The APAC countries had certain characteristics which proved to be beneficial for the expansion of Aviva’s insurance and pension business. Most of these nations were home to a large population which was not adequately served by the exiting insurance companies in the region. This proved to be an advantage for Aviva and its insurance schemes and pensions business gained wide acceptance among the people. The APAC countries constitute a mixed group of developing and semi-developed economies which have the potential for high economic growth in the future. Therefore, recently Aviva has reformed its insurance portfolio marketed in the APAC region to provide its customers with more high-margin insurance products. This has been done keeping in mind the future prosperity of the customers of these markets. Aviva has forged partnership with more than 50 prestigious banks in these countries including the DBS Bank in South East Asia, the Woori Bank in Korea, the CIMB in Malaysia, the IndusInd Banks and the Punjab Sind Bank in India and more than ten banks in China (Annual Report, 2010). The company’s various life insurance policies help its customers to deal with the risks of their everyday life ensures the protection of the citizens in the future as well. In some markets such as UK, Aviva has merged some of its life insurance schemes with those of general insurance to provide the customers with attractive products and help the business prospects of the company. The firm’s primary economic activity comprises of its insurance business and its asset management facilities and Aviva has formulates special strategies for the expansion of these operations. It has successfully tapped the world’s largest pension product market in Europe and the biggest life insurance market in UK to emerge as one of the leading insurance providers in both these markets. In the USA, Aviva adopted the policy of marketing its life insurance business together with its annuity insurance schemes and has also achieved considerable success in the country. (Annual Report, 2010) Evaluating the importance of each of the six PESTEL factors in Aviva plc’s expansion strategy, it can be inferred the external social, economic and legal factors of the different markets have played the most influential role. Social Factor: Population Demographics The social influences like the population’s health consciousness and perceptions of safety have facilitated the expansion of Aviva’s operations in its important markets. The company derives the maximum share of its revenues from the European market especially from the UK region. In these developed economies, people are more conscious about their health and safety and place high importance in ensuring the security of their lives. This has been the main reason behind Aviva’s success in these countries. Again, countries of APAC had favorable social demographics for the expansion of the insurance business. Most of these countries had a huge population of people, which presented Aviva with ample opportunities of marketing their insurance products. Economic factors – Economic Growth of Insurance Markets Secondly, economic factors like the nations; economic growth, the consumer’s disposable income have also essayed a crucial role in the successful expansion of Aviva’s business. Countries of the European Union and the North America were developed economies which had high economic growth rates. The citizens had access to a high standard of living with adequate income to spend as disposable income. These proved to be favorable conditions for Aviva to strengthen its position in these markets. Legal Factors – Regulative Framework of the Insurance Markets Thirdly, the legislative framework of Aviva’s markets had also encouraged the international growth strategy of the firm. The insurance industry depends significantly on the trust of the general population on the insurance companies. That is why most national governments have formulated elaborate laws to monitor the activities of the insurance firms. However, Aviva plc has always been careful about abiding by these laws and has able to expand its business without any obstacles. Rules like the Solvency II norms and the Solvency Modernization initiative has helped the expansion of the company in the European markets. The company has been able to establish an eminent position in countries where the legal framework did not provide any major hindrances towards its expansion activities. Conclusion Over the years, Aviva plc has emerged as an important player in the global insurance market. The company’s main economic activities comprise of the insurance business, the asset management services and the pension facilities. The firm derives the major share of its revenues from the European market, especially the UK region. Apart from Aviva’s own internal initiatives, certain external factors prevailing in the international markets have also helped the firm to expand its business network across three continents. Among these, the social, economic and legal influences have been considered to be the most influential. Appendix PESTEL Analysis of the Insurance Market with respect to Aviva Plc The PESTEL Analysis is an organizational strategy planning method that offers a framework for evaluating the different environmental pressures on a firm, a group or an industry. The term PESTEL stands for the ‘Political, Economic, Social, Technical, Environment and Technical’ factors that are considered in this analysis. In the long-term, PESTEL analysis is used to identify the opportunities and threats relating to the global expansion plans of the industry. The six PESTEL factors influencing a firm and an industry’s performance change as the area of focus changes from the domestic economy to the global market. There are usually different external influences at play in the international arena which may not be the same as those in the domestic territories. Therefore, marketing experts feel that a company should always conduct a PESTEL analysis along with its SWOT (Strengths, Weaknesses, Opportunities and Threats) evaluation to formulate its strategy for global expansion. (PESTEL Analysis, n.d; PESTEL Analysis, 2011) Aviva Plc and the insurance industry as a whole is also influenced by a number of external factors which can be classified according to the PESTEL analysis framework. The company has its operations in the countries of Europe, North America and the Asia-Pacific Region. Political Factors Countries across the world have formulated various legislations for the insurance industry and the insurance companies operating in their territories. The Governmental legislations governing the insurance industry in the European Union have particularly helped Aviva to expand its network to several countries in the continent. The firm has aligned its business activities according to the political laws and regulations prevailing in the respective countries. Thus, the company has emerged as the second largest insurance provider in the European economy. Economic factors The insurance industry being a part of the financial sector is also highly impacted by the economic and financial conditions of a country. The economic factors existing in Aviva’s market countries have also facilitated the expansion of its business operations. In formulating its strategy for global expansion, the firm has focused on countries expected to have a good rate of GDP growth. This particular industry has focused on the emerging markets of the Asia-Pacific region which have the potential for high growth in future. Aviva has explicitly stated its plans of enhancing its presence in the China and India, as both these economies are considered to witness strong growths in the coming days. Social Factors The societal factors like population growth, population demographics have a decisive influence on the performance of the insurance industry. In UK, the Government plays a proactive role in most sectors of the economy and ensures certain basic facilities to the citizens. The people are accustomed to leading a secured lifestyle and hence place a high priority on insuring their health and general well-being. Buoyed by this social consciousness, Aviva has emerged as the largest insurance company in the UK. Technological Factors Compared to the above three factors, technological factors have a limited influence on the insurance industry. Aviva’s international expansion plans have also been facilitated by the technological advancements of the different countries. Emerging technologies like the Internet has helped the company to expand its reach to the customers and market its products more effectively. The firm’s growth in technologically backward nations like the African countries has been comparatively much slower. Environmental Factors Environmental factors like climatic conditions influence the social life of the citizens which in turn determine the important decisions of their lives. Thus the insurance industry is indirectly influenced by the environmental factors. The environmental factors have also played their part in the formulation of Aviva’s business plans. Many of Aviva’s markets are subject to severe weather conditions and the citizens feel the requirement of health insurance to take care of their financial needs in the case of a medical emergency. Legislative Factors The insurance industry is considerable impacted the existing regulative framework of a place. Finally, the company has also been considerably helped by the legislative framework of the different markets, which have paved the way for its expansion in these places. Some international countries do not encourage the presence of private companies in the insurance industry. However, none of Aviva’s markets have followed such a policy which has allowed the firm to gain a foothold in the various countries (Aviva Worldwide, 2011). References 1. Business Summary, (2011). Aviva, available at http://www.aviva.com/investor-relations/business-summary/ (accessed on December 29, 2011). 2. Europe, (2011). Aviva, available at http://www.aviva.com/investor-relations/business-summary/europe/ (accessed on December 29, 2011). 3. Home, (2011). Aviva, available at http://www.aviva.com/ (accessed on December 29, 2011). 4. Aviva UK, (2011). Aviva, available at http://www.aviva.com/investor-relations/business-summary/uk/ (accessed on December 29, 2011). 5. Management Research Project on Insurance Industry, (2011), available at http://www.scribd.com/doc/8729865/An-in-depth-analysis-of-Insurance-Industry (accessed on December 29, 2011). 6. PESTEL Analysis. (n.d) available at http://www.improvementnetwork.gov.uk/imp/aio/1033478 (accessed on December 29, 2011). 7. 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