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Anonymous A
on Aug 05, 2018
Global
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Market Sizing: "How big is the life insurance market in Germany?"

How would you approach this market sizing question?

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Top answer
Paul
Coach
on Aug 06, 2018
PL-level BCG experience (6 years)|Interviewer at BCG| 6/6 personal + 95%+ candidates offer success rate

Hi,

I would go with the "top-down" approach for this - high level - you can definitely refine it

Step 1: find a driver or proxy of the general penetration in the population for the object involved in the market sizing: in this case i would say households are a good proxy 

Step 2: segment your proxy - for example here you could segment by willingness to buy excluding some categories of houselholds (e.g. based on non-affordability of the premium), substitutes (people saving by their own, etc...) and other % that reduce the "potential" market

Step 3: asses average # of policies per household - here I would say from the outside, pretty high for the german market (> 1 policy/ HH)

Step 4: multiply it all

If this is a question about the overall market - make sure to be precise in terms of the overall opportunity related to all the policies in place (the above) - otherwise if this is an annual figure for a player in the space you should take into account

1) Replacement rate of policies (how many years for a new policy to be issued?) - therefore the total opportunity should be divided using the replacement rate (e.g. if people by life insurance every 4 years then it is the above / 4)

2) Assessment of the market share (only relevant if we are talking about a single corporation inside the market)

Hope it helps

Regards

Paolo

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1 comment
Floris
on Feb 22, 2022
Sorry but this only raises more questions. Why would you take households? Life insurances are not grouped per household right? Why would you furthermore work with 'replacement rates'? Insurance is not something you pay all at once at the start, rather it is characterized by the premiums which are spread over the insurance period?
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Related Article
Market Sizing
Questions about market size are frequently asked in case interviews in consulting because they require a blend of logic, mathematics, and common sense. They can be asked as standalone questions or as part of a larger case. Applicants who are familiar with market sizing questions can really perform here. What Are Market Sizing Cases?If you're applying to top consulting firms like McKinsey, BCG, or Bain, you're unlikely to escape a market estimation case. Market sizing cases are considered "back-of-the-envelope" calculations because they can be done on the back of an envelope. Despite the name, it's not just about estimating market sizes; other estimations may also be asked for.For example, if you're discussing a British clothing retailer's growth strategy, you could calculate on an envelope how large the online clothing market is and what percentage of the market the retailer already penetrates. If you perform these calculations quickly, the conversation with the client stays fluid, leaving a good impression.You can receive the question about market size as a standalone case (although this is less common) or as part of a more comprehensive problem, such as market entry. The good news: There's no right or wrong answer when it comes to the question of market size. The interviewer is less concerned about the specific number you come up with for the market than the approach you took to arrive at that number. Why Are Market Sizing Cases Commonly Used in Consulting Interviews?Market Sizing Cases are used to test your quantitative and logical abilities. The interviewer wants to ascertain whether you work well with numbers and if you can make informed assumptions and deal with ambiguities. Questions about market size aren't just about the size of markets; they also involve other types of estimations, such as the number of golf balls in a jumbo jet. As you may have noticed, math is crucial in tackling these questions since you don't have a calculator to rely on. Most importantly, you need to be comfortable dealing with large numbers like millions and billions as well as percentages. More on that later. How Do You Best Approach Market Sizing Cases?Now that we understand the theory behind Market Sizing Cases and their relevance to your case interview, let's take a closer look at the process.Segmentation – The Key to Market Sizing CasesIf you've done some reading on case interviews before delving into market sizing questions, you might have come across areas where segmentation is necessary. Segmenting data is a crucial skill you must master as both a candidate in a case interview and in your later career as a consultant. Segmentation generally refers to dividing a larger whole into smaller parts or segments. The principle you need to understand to do this correctly is the MECE principle.MECE stands for "mutually exclusive, collectively exhaustive." Simply put, segmenting a group of data according to the MECE principle means forming subgroups that do not overlap but collectively cover the entirety of the data, meaning no data is missing. An example useful for market sizing questions is dividing a country's population into age groups (as different age groups often behave differently).Below is a breakdown into Group 1 in the age range 0 to 14, Group 2 in the age range 15 to 64, and Group 3 for everyone over 65: Note that none of the groups overlap, so no age is counted twice, but also no age is overlooked. Now that the population is correctly segmented, we can treat each group differently. If we had divided the population of the United Kingdom into the aforementioned groups, we could estimate clothing expenditures per person in these groups in online retail. Common sense suggests that expenditures per person in the 0-14 age group are lower than in the 15-64 age group. We can justify this estimation by noting that the majority of 0-14-year-olds do not purchase their clothing online. 
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