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Management Series: insurance-and-pensions

Relational competing – how players in the Reinsurance market demonstrate that competition isn’t always cut-throat

Addressing the rarity of research into relational competitive dynamics, a new study examines how competitive instincts in a syndicated market, namely reinsurance, are moderated in the aim of a common benefit.

Author(s): Professor Paula Jarzabkowski - Cass Business School; Dr Rebecca Bednarek - Birkbeck, University of London

The dominant focus in competitive dynamics is head-to-head rivalry, where the imperative is to succeed at the expense of your competitors in business. This paper, Toward a Social Practice Theory of Relational Competing, instead explores the phenomenon of relational competition. Here, the aim is not to damage or beat a rival but to prosper by contributing to the overall value of the market, even if that means to the benefit of the competition.

Drawing on their specific expertise, the researchers focused on the Reinsurance industry. With access to 22 reinsurance firms and three brokerage firms, covering 60 subsidiaries globally, they were able to collect data on the everyday practice of reinsurance underwriting managers as they priced, negotiated and allocated their firms’ capital to deals.

Reinsurance is a global $260 billion syndicated financial market that insures insurance companies against large-scale losses. Multiple competitors take shares in a deal or a product at the same price. Syndication helps keep the price on a deal high through individual quotes, which informs the eventual single market price. This benefits all competitors, who stand to gain from establishing the highest price possible. A primary goal within pricing therefore is to provide the best quality playing field possible for all participants, rather than seeking to gain the upper hand over a rival.

Syndication does not mean a lack of competition. Market players remain highly competitive in wanting a share of the best deals. However, they are compelled to act in a relational manner to ensure buoyant pricing, maintain long-standing relationships with clients, and to contribute positively to the overall health of the market. Ultimately this behaviour may even ensure the survival of competitors.

So, we see that competition can, paradoxically, mean collaboration.

In addition, the research develops the concept of micro-competitions. Micro-competitions are every day occurrences of competitiveness: specific issues, such as an individual reinsurance deal.

The study shows that, despite the overarching potential for relational competition, there is variation in relational or rivalrous competition by any individual competitor across the phases of a micro-competition, between competitors within a micro-competition, and across multiple micro-competitions. Competitors’ rivalrous or relational motivations, therefore, are dynamic and can shift throughout any deal.

This variation can be explained through the interplay between the unfolding wider competitive arena, which the research defines as the multiple micro-competitions upon which all competitors act, and the unfolding implementation of each firm’s specific strategic portfolio.

The findings identify one rivalrous and four relational motivations for these shifting and varied competitive dynamics.

This study has developed a conceptual framework for understanding competitive dynamics within a relational industry context. The research contributes to the following themes:

  • relational competition;
  • reconceptualising action and response within competitive dynamics;
  • elaborating on the competitive dynamics awareness-motivation-capability framework, and
  • understanding the recursive dynamic by which implementing strategy inside firms shapes, and is shaped by, the competitive arena.

Despite their economic significance, there is a dearth of research into relational competitive dynamics, particularly relating to syndicated markets. This study goes in some way to rectify this.While the study is grounded in the reinsurance industry, its findings are likely to be relevant to other syndicated markets.

The article has been accepted for Strategic Management Journal. A peer-reviewed version can be requested at City Research Online.

The article was co-authored by Professor Paula Jarzabkowski of Cass Business School and Dr Rebecca Bednarek of Birkbeck, University of London

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