Please show work. USAA is a financial services company that offers service to mi
ID: 3074476 • Letter: P
Question
Please show work.
USAA is a financial services company that offers service to military families. Originally, USAA only offered service to officers, but extended eligibility to enlisted personnel and former military members who served and were honorably discharged. They also provide service to immediate family members.
Using the chain ratio method found in Appendix 2 in your text, estimate the market potential for life insurance in the military (active duty and veterans) market for a country. Assume that there are 22,600,000 veterans. Additionally, the number of active duty personnel is 1,972,175 The percentage of the population that has life insurance is 51%. Also assume the average price for a for life insurance is $3,000 and veterans and active duty personnel will purchase only one life insurance policy.
1. Given the data, what is the number of buyers in this market?
2. Given the data, what is the market demand?
Chain Ratio from Appendix 2:
Q=n×q×p
where
Q= total market demand
n= number of buyers in the market
q= quantity purchased by an average buyer per year
p=price of an average unit
A variation of this approach is the chain ratio method. This method involves multiplying a base number by a chain of adjusting percentages.
Explanation / Answer
Chain Ratio method involves estimating market demand by multiplying a base number by a chain of adjusting percentages.
Given that there are 22,600,000 veterans and 1,972,175 active duty personnel.
The percentage of population that already has life insurance is 51%
(1) The total number of military personnel to whom the service is provided is
22,600,000 + 1,972,175 = 24,572,175
So the total number of active buyers is 0.49 * 24,572,175
= 12,040,366
(2) The cost of an insurance is $3000 and one person buys only one insurance.
So the total demand in the market is
12,040,366 * 3000
36,121,097,250