In 2009, Vietnam insurance market has a successful year while maintaining the high growth rate (the rate of income/GDP = 2. 3%). General insurance premium revenue in 2009 estimated at about 24,681 billion VND, including sales of non-life insurance premium is estimated at 13,250 billion (up 21% over 2008), sales of life insurance costs estimated at 11,431 billion (up 10. 95% compared to 2008). Even though, insurance market in Vietnam is still facing many challenges. First is the expansion of new markets by exploiting because the traditional market competition is fierce.
Besides that, the financial capacity of insurance companies should be improve in order to retain insurance contract. Foreign competitions were allowed into provision of compulsory insurance products as of January 1 2008, pursuant to the nation’s WTO commitments. Domestic insurance businesses were also struggling to improve training and professionalism of human resources, develop information technology, and improve business practices to better serve clients. B. About Bao Viet and Bao Viet insurance Founded in 1964, the original name is Insurance Company of Vietnam.
At that time, total sales of Bao Viet have reached 78 billion, total assets reached 73 billion, profits were 6. 6 billion Vietnam dong. In 2005, Bao Viet Group was established by Resolution 310 of the Government’s equitization plan. On 15/10/2007, Bao Viet Group completed business Registration Company shares with the participation of strategic partners who is the leading conglomerates in the country (Vinashin) and foreign (HSBC Insurance (Asia – Pacific) Holdings Limited), formed Financial Group – Insurance Vietnam.
With strong financial potential, Security Group Vietnamese have been and will continue to expand the types of business services: Life insurance, Non-life insurance, Securities, Financial investments, Banks and the others businesses (Bao Viet website) Currently, Bao Viet insurance is the biggest provider of life insurance products in Vietnam, holds 34% market share by revenue insurance. Since the early years of opening and development the life insurance market in Vietnam, Bao Viet insurance has made great progress, with nearly 20,000 strong staff and consultants in 60 member companies.
Currently, Bao Viet is the market leader in customer service numbers with a total of nearly 4 million contracts (Bao Viet website) – Owner and shareholder: The owner of Bao Viet insurance is Insurance – Financing Bao Viet Group. Bao Viet is a large company, so they have a lot of shareholder who each own a small part of business. HSBC Insurance – 100% foreign owned subsidiary of Hong Kong and Shanghai Bank (HSBC) has been selected to become the only foreign strategic shareholders Bao Viet with buying rate is 10% of charter capital.
Bao Viet also has a domestic strategic shareholder who is Vinashin, Group of Vietnam Shipbuilding (Huong Ly, 2007) – Managers: is the person who organize, makes decision, control. In this case, Managers of Bao Viet Insurance are the Board of Directors that is the body having full authority to exercise all rights in the name of the Company. The BOD shall make decisions on medium-term plans and strategies, annual business plans.
– Employees: Bao Viet, is the only insurance business in Vietnam has branches all over the country, attracting a large force employees to over 5,000, with about 34,000 dedicated agents, committed to the job spread over all provinces. – Customer: After nine months of business in 2009, Bao Viet life has received the trust of more than ten thousand new customers across the country, raising total customer numbers to participate in more than 4 million people.
– Community: Along with the deployment of business activities, Bao Vietnam focused and active participation in community social activities, such as participation “Noi vong tay lon 2009” with 25 billion VND to support the poor, donate 500 million VND to the people who affected by the storm 11, etc… At the first, Bao Viet insurance is a total 100% state owning company that has been equitization, in which the State holds 65% charter capital and is also the largest shareholder. After equitization, the company grew bigger and raises competitiveness in domestic and international.
However, there are few problems also, as the State holds the majority of capital, which has created barriers to the development Bao Viet. The reason is the state fixes the salaries of its managers. In 2007, Vietnam joined the WTO, beisdes the positive affects, there can be some challenges for Bao Viet and other insurance companies. Follow commitments, foreign insurance enterprises do not need to set up insurance businesses in Vietnam can also exploit the insurance market in Vietnam. This commitment has strong influence on some types of non-life insurance and limited foreign groups and projects with foreign investment capital in Vietnam.
In 2009, the State management mode is on an improved with the promulgation of “Decree 41 on administrative sanctions in the field of insurance business and a number of other ones” (Lan Huong, 2009). In addition, the government also issued orders to tighten licensing the establishment of insurance enterprises. From there, it will create a more stable environment. According to Trinh Thanh Hoan, Director of insurance Management and Supervision Department, “in 2010 management agencies will continue to improve and promulgate legal documents on the insurance business”.
“In the future, we will offer a minimum fee, no business will be lower than that, that policy ensure no bankruptcy, on the other hand ensure customers’ interests”, Hoan stressed (ATPvietnam, 2010) Economical These are few economic figures in 2009: GDP growth of 5. 2%, on average in the area but is the lowest in a decade. Inflation was maintained at less than double digits, 7%. Poor rate fell 11%, faster than the roadmap commitments to achieve the Millennium Development Goal (MDG). However, because of global economy crisis, insurance industry still suffered losses.
In 2009, the total losses of the overall insurance market are “264 billion, down 105. 9 billion compared with 2008” (ATPvietnam, 2010) Rising interest rates caused many customers want to finish their contract soon to get the money to put into the banks. However, factors of macroeconomic stabilization and recovery in 2010 are the favorable conditions for the insurance industry. Bond market is expected to be active by increasing interest rates. Bao Viet insurance also set a target revenue growth in the original premium of 15% this year compared with 2009, profit before tax 300 billion VND (Van Lam, n.d)
Comments on the accelerated plan of insurance companies after a difficult year, insurance industry experts said that in the current context, if you will not move, you will be setbacks. By 2010, the insurance market would welcome additional participation of a number of new insurance companies, including companies of the leading insurance enterprises of area and the world.
Monetary policy in 2010 will be operating very flexible, ensuring harmonization of goals. If too tight, it would make business difficult, leading to difficult to achieve 6.5% growth and it involves many implications for social security. But if it’s further easing will be hard to ensure targets inflation at 7% a year (Kim Chi, 2009) Social – cultural Currently, the people of Vietnam still mainly use investment forms a “traditional” as savings deposit, real estates, buy gold, hard currency investment capital … other channels such as insurance, bonds, stocks … have not been “activated. ” Vietnamese people are seldom thinking about the risks and did not want compensation from life insurance that they calculate principal factors affecting savings and investment.
Because of cognitive, psychological and consumption as well as saving habits of Vietnamese customers, it also partly affect the life insurance market in Vietnam. Technology Vietnam insurance companies are necessary to apply information technology to enhance business efficiency, especially when the door is immediate integration. Although elements of information technology applications can not play a decisive role to the success or failure of every business, but in the trend of globalization today, if the application of information technology on business activities not make good, it will definitely pull back in compare to competitor.
This may be an indirect factor that businesses fail in the marketplace. In 2003, Bao Vietnam spent about $ 6 million, equivalent to 70% of the company’s profit in 2002, investment in IT (Thanh Tung, 2003). Bao Viet has invested application of information technology in management and business. Bao Viet insurance is the first non-life insurance company builds insurance and accounting management software BVPROP BVACCOUNT.
At the same time they have adopted standard quality management system ISO 9001:2000 that helps tight control of insurance processes and internal controls to ensure quality of service provided to customers and business efficiency (Vinasme, 2009) On February 1st, 2010 in Hanoi, Baoviet Insurance Corporation Vietnam held a ceremony to sign a contract to buy the Insure J software with the joint-alliance contractors Bravura Solutions and SSP. Project implementation is divided into two phases. In the first phase expected to take 14 months and completed in early 2011.
In phase 2, IT experts of the Baoviet Holdings and non-life professionals from Baoviet Insurance Headquarter will deploy the application and training at Baoviet Insurance branches nationwide. b) Porter 5 forces – Threat of new entrants After becoming a member of WTO, since 2008, foreign insurance companies have provided some insurance products across the border into Vietnam. This give the signal an unequal competition for local firms because they can not know information about the “weapons” of abroad opponents while insurance companies are operating in foreign countries know very well Vietnam market.
Under WTO commitments, the following five years after accession, Vietnam will allow branches of foreign insurance companies are operating in Vietnam. Domestic enterprises will hardly compete with foreign enterprises on their financial capabilities as well as their expertise. However, the strength of law is the most important thing for insurance enterprises in Vietnam because the insured will be protected the legitimate rights and interests before the law Vietnam instead of having the barrier of language, lawyers, sources of law and stand trial abroad (Truong Nam, 2009)
– Threat of substitutes (investopia) This one is pretty straight forward, for there are plenty of substitutes in the insurance industry. Most large insurance companies offer similar suites of services. Whether it is auto, home, commercial, health or life insurance, chances are there are competitors that can offer similar services. Companies focusing on niche areas usually have a competitive advantage. Based on habits and culture of Vietnamese people, there are also other substitutes. Those are savings deposit, real estates, buy gold, hard currency investment capital.
Vietnamese customers prefer those investment methods than buy a insurance contract. – Power of suppliers The suppliers of capital might not pose a big threat, but the threat of suppliers luring away human capital does. A good insurance underwriter has chances to be enticed away by larger companies who looking to move into a particular market. – Power of buyers The individual doesn’t pose much of a threat to the insurance industry. Large corporate clients have a lot more bargaining power with insurance companies. Large corporate clients like airlines and tourisms companies pay billions VND a year in premiums.
Insurance companies try extremely hard to get high-margin corporate clients. – Rivalry among competitors The insurance industry is becoming highly competitive. First, there is competition among insurance companies about products, service quality, human resources, distribution channel development and level of information technology applications. Second, there is competition between insurance companies operating in Vietnam with the business of insurance in foreign countries to offer insurance products within the framework agreed in the WTO.
Finally, it is the competition among insurance companies with financial services such as savings deposits, securities, and real estate business. The difference between one domestic insurance company and another is usually not that great. From there, the situation of unfair competition between businesses has raised, such as reduce costs and expand insurance conditions, increase deductions, etc… These actions led to the distortional development of market, loss of business for themselves as well as the consumer market. The fully aware of the nature and impact of unfair competition with Vietnam’s insurance industry is now very necessary.
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