1. Pestle Analysis
PESTLE/PEST analysis is a strategic analytical tool that stands for political, economic,
sociocultural, and technological factors. It provides a view on the environmental factors that
might favorably or unfavorably affect a company. Though Mercantile Insurance is a wellestablished and one of the fastest-growing companies in its industry, external factors still
affect its growth and everyday operations. The analysis below was conducted to explore the
general external factors that influence the overall operations of Mercantile Insurance
Company.
Table
Analysis /remarks
Political Segment

Political factors such as changes in tax laws, employee benefits, and regulations
could influence the company’s operations and compliance requirements. Mercantile
Insurance must stay informed about those factors to manage legal risk.
Economic Segment

The performance of Mercantile's finances and the demand for insurance products
may both be affected by economic conditions including interest rates, inflation, and
the possibility for an economic crisis. Mercantile should proactively review coverage
needs with customers and agents to offer increased limits.
Sociocultural Segment

Mercantile Insurance must be proactive to effectively manage risks in every area,
from economic risks like rising interest rates and the recession to growing cyber
security threats and challenges with workforce shortage.
Technological Segment

Mercantile Insurance should keep up with technological advancements to stay
competitive and meet evolving customer needs. Technological developments
may necessitate changes in demand patterns, customer preferences, and
coverage types, requiring Mercantile to adapt to maintain its competitive
advantage.
B. Key factors affecting the business
1. Political factors
Political factors can significantly affect the financial services industry due to its
reliance on government regulations. These elements may have a favourable or unfavourable
effect on a company. As with all industries, insurance firms are affected by the regulatory
and legal framework that exists in the country in which they operate. The insurance industry
is one of the most heavily regulated in the country, next to the banking industry, both of
which are part of the financial services sector. Below is the list of the most important
political trends to take into account:
i.
ii.
iii.
iv.
v.
vi.
Changes on tax laws
Capital requirement
Mandatory employee benefits
Insurance business in rural/ social sector
Corruption level
Government regulations
2. Economic factors
i.
ii.
iii.
iv.
v.
Interest rates
Inflation rates
Economic crisis
Economic growth
Underwriting circle
3. Social factors
The insurance sector is a complicated and competitive industry that is influenced by
a variety of interconnected societal concerns. Insurance firms have financial duties, such as
dealing with claims, issuing policies, and conducting underwriting activities, but the social
aspect of the business is also crucial. All of these indicate a trend to availing all products and
services. Few marketers refer to it as socio-cultural factors, which include people's cultures.
Marketers and trendsetters have little control over social issues, but they are directly or
indirectly responsible for influencing the market in the long run.
Below is the list of social factors that an insurance company should consider.
i.
ii.
iii.
Work and Employment Patterns
Mortality rates
Demographics
iv.
v.
Cultural issues
Attitude towards careers, health, and lifestyle
4. Technological factors
Innovation through new technology is a fundamental driver of change in the
financial sector, and this has resulted in tremendous efficiency improvements. The
insurance industry is no exception, with technological advancements allowing for new
means of service offering and increased chances for data collecting, which can lead to better
risk identification and mitigation strategies. According to Gotsch, from Property Casualty
360, "Technology is changing how insurers interface with their business partners." Many
insurers are embracing technology and their business partners to expedite the process and
make it easier for customers. It will be the most important factor and transform how the
market operates. The following are the prominent factors affecting an insurance company:
i.
ii.
iii.
iv.
Smart contracts
Digital marketing
Advancements in artificial intelligence
InsurTech
5. Environmental factors
Various markets have different standards or environmental standards, which can
impact the profitability of an organization in those markets. For the insurance business, as
the climate continues to shift, insurers face higher financial risks from pay outs and claims
related to extreme weather events like floods and fires. As a result of the change in the
global climate, insurers demand higher premiums. As more extreme weather events occur,
insurers are left to cover the cost of large-scale losses due to these disasters. Although
environmental change is beyond our direct control, many costs of environmental change
could be avoided by taking action today. Below is the list of environmental factors that an
insurance company should consider.
i.
ii.
iii.
iv.
Climate change
Laws regulating environment pollution
Air and water pollution regulations in Life Insurance industry
Natural disasters
6. Legal factors
The laws and regulations that apply to the area and the organization are reflected in
the legal factors. The laws and regulations of various nations have varying effects on the
sector. These variables include how well-established the rule of law is, how fast and easily
rules and regulations can change, and how much it will cost to comply with regulations. All
policy revisions should be thoroughly understood and reviewed on a regular basis. Below is
the list of legal factors that an insurance company should consider.
i.
ii.
iii.
iv.
Anti-trust law in Life Insurance industry and overall in the country.
Copyright, patents / Intellectual property law
Employment law