AIG Porter's Five Forces Analysis

Rating agencies indirectly shape supplier power by impacting AIG's borrowing costs and reputation. Positive ratings from agencies like S&P Global Ratings, which rated AIG as A- in 2024, lower borrowing costs. Conversely, negative ratings can increase these costs; for instance, a downgrade could raise AIG's interest expenses. This financial pressure affects AIG's ability to negotiate with suppliers.

• AIG's credit rating directly influences its financial flexibility.
• Positive ratings reduce borrowing costs, strengthening AIG's bargaining position.
• Negative ratings increase costs, weakening its ability to negotiate.
• Reputation damage can also affect supplier relationships.

Labor unions' bargaining power over AIG varies geographically. In areas with strong union presence, like parts of the U.S., unions can influence labor costs. This can lead to higher operational expenses for AIG, impacting profitability. However, the extent of this impact depends on the union's strength and the specific contracts negotiated. AIG's global operations mitigate some of this risk.

• Union membership in the U.S. insurance industry was around 10% in 2024.
• Union negotiations can raise labor costs by 5-10% depending on agreements.
• AIG's workforce is globally diversified, reducing union impact.

Direct-to-consumer (DTC) insurers are intensifying competition by providing simplified products and lower prices. These companies, like Lemonade, are growing; for example, Lemonade's gross earned premium reached $775 million in 2024. They use technology to streamline insurance processes, a trend AIG must address. To stay competitive, AIG needs to invest in its digital capabilities and customer experience.

• Lemonade's gross earned premium reached $775 million in 2024.
• DTC insurers offer simplified products and lower prices.
• Technology streamlines insurance processes.
• AIG must invest in digital capabilities.

Alternative risk transfer (ART) markets, including catastrophe bonds and insurance-linked securities, present competitive challenges to AIG. These ART mechanisms offer alternative risk coverage, potentially reducing demand for traditional insurance. In 2024, the issuance of catastrophe bonds reached $14 billion, demonstrating their growing importance. AIG needs to adapt its risk management strategies to address these evolving alternatives.

• Catastrophe bond issuance in 2024: $14 billion.
• ART markets offer alternative risk coverage.
• These mechanisms may decrease demand for traditional insurance.
• AIG must adjust risk management strategies.

Economies of scale pose a significant threat to new entrants in the insurance industry. Larger companies like AIG can offer competitive pricing due to their size. Newcomers often find it difficult to match these prices, creating a barrier to entry. AIG's substantial scale provides distinct cost advantages over smaller competitors. In 2024, AIG reported gross premiums written of $37.5 billion, showcasing its market dominance.

• AIG's large asset base allows for diversified investments, reducing risk and potentially increasing returns.
• Established insurers benefit from existing customer relationships and brand recognition.
• New entrants face high initial capital requirements for regulatory compliance and infrastructure.
• Distribution networks and agent relationships are costly and time-consuming to establish.

AIG benefits from its extensive distribution channels, encompassing brokers, agents, and direct sales, which are already established. New entrants face the challenge of building their own distribution networks, a process that is both costly and time-consuming, creating a significant barrier. This existing network gives AIG a competitive edge in reaching customers efficiently. The complexity of navigating regulatory requirements further complicates market entry for new firms.

• AIG's established channels include brokers and agents, offering broad market access.
• New entrants require time and investment to develop comparable distribution capabilities.
• Regulatory compliance adds to the challenges for new firms entering the insurance market.
• This advantage helps AIG maintain its market position in 2024.