G1_00300 CHIẾN LƯỢC PHÁT TRIỂN BẢO HIỂM XE CƠ GIỚI CÔNG TY BẢO HIỂM AAA GIAI ĐOẠN TỪ NAY ĐẾN NĂM 2015 DEVELOPMENT STRATEGY FOR MOTOR VEHICILE INSURANCE AAA ASSURANCE CORPORATION THE PERIOD FROM NOW TO 2015

G1_00300 CHIẾN LƯỢC PHÁT TRIỂN BẢO HIỂM XE CƠ GIỚI CÔNG TY BẢO HIỂM AAA GIAI ĐOẠN TỪ NAY ĐẾN NĂM 2015 DEVELOPMENT STRATEGY FOR MOTOR VEHICILE INSURANCE AAA ASSURANCE CORPORATION THE PERIOD FROM NOW TO 2015

| CAPSTONE PROJECT REPORT

| DEVELOPMENT STRATEGY FOR MOTOR

VEHICILE INSURANCE AAA ASSURANCE CORPORATION

THE PERIOD FROM NOW TO 2015

GROUP No.09

e DINH VIET DUNG

e NGO HOANG SON

e NGO THANH NGOC

Ho Chi Minh City - 2012

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1.7 The External Factor Evaluation Matrix — EFE |

1.9 The Internal Factor Evaluation Matrix — IFE 13

1.11 The Strategic Position & Action Evaluation matrix — SPACE 15 1.12 Quantitative Strategic Planning Matrix QSPM 16

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2.2.2 AAAs mission and vision 26 22.3 AAA organization structure LT

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Đo, Opportunities for AAA 6S 3.3 AAA objectives in the period 2012-2015 66 3:1: Objectives in the period 2012-2015 2 221222218221 11525251 x55 66

2 5É Annual detailed goals in the period 2012-2015 seca 68

3.4.1 SWOIT analysis 71 5.4.2 The Strategic Position and Action Evaluation matrix — SPACE 73

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Table II - Definition of specHlc strateples The 5 Table I 2- The steps of formulating strateeltes Š Table 241 =A AAS CHStOMeF CAST ICAN ON cscs siccsscsssscccnicnieserevererescinausineeasiesexessannne 29 Table 2.2 — Vehicle Irsurancerevenues 2009 — 20] Ì : c co 2000 ae 3l Table 2.3: vehicle insurance share of total non-life market In region 32 Table 2.4 Average Statistics of accident numbers 33 Table 2.5 — Decentralization table responsibiliies - 5 2222122222152 se 36 Table 2.6 - Customer density in the channels for voluntary vehicle insurance 38 Table 27 — Revenue of groups of products in 2009 — 201] 40 Talbe 2.8: Research and development from 2009 to 2011 42 TaDÌ6 2.:ripndwpifieiit s0fWBTE TUIÌCHỔI báogggga gang ï on, 631c 562110 1026661 2546 069<,se6 43 Fable 2.10 = Distribution: of surveyor for branches sii siescssiscscessissceccsssenuseurssovieusscaesx 45 Table 2.11 — Insurance companies in Vietnam 2007 — 2011 - c2 cczcs22 47 Table 2.12 — Vehicle Insurance Revenue of Big Companies 2009-201 1 49 Table 2.13— Vehicle Insurance Revenue of Foreign Invested Companies 50 Table 2.14 - Vehicle Insurance Revenue of Similar Structure Companies 2009-201 |

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Table 3.1 - Revenue of Insurance Market 2007 - 2012 62 Table 3.2 - Revenue of Vehicle Insurance in the period 2008 — 2011 63 Table 3.3: Annual detailed goals in the period 2012-2015 68 Table 3.4: Detail forecast of revenue and claims copensation from 2012 to 2015 69 Table 3.5 - SWOT analysSiS Q Q Q Q Q11 ST TT ng TK ra 73 Pable 3:6'- Space analysis ccc scisccssssasovsusceseas ttWb4689383S40E504SGSGJ2SSSSNSAEi04G693//.GG3x3 14 Table 3.7 = QSPM analysis :.a.: cc2 a ie 8 RAAB Sac SUNS GS 76 Table 3.8- Rate of management staff receiving formal training 8]

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TablpBP (@Wmw#esuerta-bwtdsgstsbaged on vehicle insurance revenue 82 Table 3 1Ó: Investment on Information Technology to 201S 84 Table 3.11 -: Plan on Girect assessment Centers SYStEM 3scicsc0s cssioscsasssavecsnguvrrariesase 88

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In recent years, the Vietnam’s insurance industry has experienced a lot of ups and downs due to the fluctuations of Vietnam’s economy and the world’s economy However, experts have estimated that the Vietnam's insurance market has a lot of potential, especially for the non-life insurance sector

Facing a lot of difficulties in the current economic context, AAA Assurance Corporation determines the strategy focusing on motor vehicle insurance (vehicle insurance) to provide individual customers with leading insurance products

In addition to the insurance products required by _ State regulations such as compulsory third party liability insurance for motor vehicle owners insurance companies compete fiercely on voluntary insurance products to gain the market share Among motorcycle and automobile civil liability insurances, AAA concentrates on voluntary automobile insurance products With strong competition from well-known domestic insurance companies and foreign insurers, AAA needs a flexible and effective strategy to develop the automobile insurance That's why we have chosen this topic for our study to provide AAA with possible suggestions and solutions to develop voluntary automobile insurance products

In the thesis "Development Strategy in motor vehicle insurance of AAA Assurance Corporation in period from now to 2015", we'll focus on the competition in the industry, AAA’s issues and possible solutions

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Object and scope of the research

The thesis focuses on the motor vehicle insurance (vehicle insurance), particularly the AAA’s voluntary automobile insurance

The structure of the topic

This thesis is divided into three chapters:

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QUALITY MANAGEMENT THEORY

1.1 THE CONCEPT OF DEVELOPING BUSINESS STRATEGY

Building business strategy is an art to build long-term goals and implement policies

in orders to guide and create competitive advantage of enterprises

1.1.1 The concept of strategic management

Strategic management is an art and science to establish, implement and evaluate the relevant decisions of many functions that allow an organization to achieve objectives

1.1.2 The role of strategic management

Strategic management helps company’s BOD and BOM understand the goals and directions Of its business activities in the long-term perspective It increases company’s autonomy and adaptability in facing with changes of business environments With analyzing and forecasting skills, it helps managers actively adjust the targets and operational management activities if necessary

1.2 CLASSIFICATION OF BUSINESS STRATEGY INCLUDING THE FOLLOWING TYPES:

It includes the following types:

e Company strategy: the strength of a company depends on three control factors of three strategic controlling factors including human resources, business operations and organizational structure The advantages of a company depend on the quality and the efficiency to combine those strategic controlling factors

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» Orienting strategy: Depending on period and sector, a company can have different orientations: Taking opportunities to develop, protecting the current position, or withdrawing frorm the market It needs one strategy for each

direction

2.4 Types of main strategies

here are 14 types of strategies in specific strategy The term "specific" (generic) is ised here because each strategy has numerous differences

Market penetration Looking for market share increases for existing products and

services in existing markets through more marketing efforts

Joint ventures Two or more sponsoring companies to form an independent

company for cooperation purposes

Downsizing Consolidation through cutting costs and assets can prevent

revenues and profits from declining

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Combination Pursuing two or more simultaneous strategies

Table 1.1 - Definition of specific strategies 1.2.2 The typical strategy of Michael Porter

According to Michael Porter, the typical strategy allows a company to obtain competitive advantages from three different bases:

* Costs: Offering standardized products at low prices to customers who are sensitive to price

* Dzifferentiation: A strategy aimed at characterized and differentiated products and services in the industry and aimed at customers who are not sensitive to price

* Focus: Offering products and services to meet the needs of a certain segment or

a group of customers

1.3 THE STRATEGIC PLANNING PROCESS

The important techniques to form a strategy can be incorporated into a decision- making process, which consist of three phases

STAGE 1: INPUT STAGE

External Factor Competitive Picture Internal Factor Evaluation Evaluation Matrix (EFE) Matrix (CPM) Matrix (IFE)

STAGE 2: COMBINATIONAL STAGE

Position and Boston and

Action Consulting External

fXôldiiiiffee Evaluation | Group matrix Factor Matrix

| STAGE 3: DECISION STAGE

Quantitative Strategic Planning Matrix (QSPM)

Table 1.2- The steps of formulating strategies The tools using for this process can be applied to all sizes and types of organizations, helping strategists identify, evaluate and select strategies

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LPDF GovibresorOtr dade hort L ENVIRONMENT

Controlling external factors focuses on the identification and evaluation of trends and events beyond the control of a single company These trends and events have a great influence to all products, services, markets and institutions in the world

[his process requires the participation of the largest possible number of managers and employees To control external factors, we need firstly to collect data and information on social trends, demography geography, economy, poiitics, government and technology by using modern information technology and the

electronic data interchange (EDI)

Macro environment is the major social factors affecting the microenvironment elements of the business Those factors include population, economy, natural resources, technology, regulation and culture

e Population: Population environment includes factors such as population size, population density, migration trends focusing on cities, age, gender, changes In the age and family structures, single orientation, couple with less children, race, education, vocational training

e Economy: Factors affect the consumer purchasing power and create different spending patterns Apart from demand and price, the spending ability also depends on the economic situation, income level, savings, financial and credit conditions The trend of higher average income creates not only a higher purchasing power in the market, but also different needs and desires from

consumers

e Natural resources: Many industries are facing the shortage of natural resources needed for regular and continuous activities (water minerals, wood, land ) These shortages increase production costs, change the image of products and

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and the human activities

Technology: The scientific technology advances affect the market in many aspects It shortens the product life cycle, creates new products and increases market competitiveness There is a close relationship between research and development costs and profitability

Politics and regulation: Political and regulation environment have 3 main functions The first one is to protect the interests of companies in relations to each other The second one ts to protect consumers against deceptive business of companies The third one ts to protect the general interests of society against the wrong business behaviors

Culture: Most cultural values are formed, existed and worshiped throughout the history of each nation It’s the foundation of everyone’s beliefs and life values, which are usually stable and difficult to change Subcultures are groups of people sharing the same values The religious groups, different races, youth groups and women represent different beliefs, perceptions and behaviors They form consumption groups with different needs and desires

The forces affecting the microenvironment consist of:

Enterprise: Managers must create the close coordination among company’s units The following chart shows that close relationship:

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materials, human resources

Marketing intermediaries: They are supporting companies to find customers and can sell goods or services directly to customers because they have advantages in terms of locations, prices, time and procedures

Customers: They are very important, including consumers (buying goods and services for individual uses), producers (buying goods and services for production), intermediary traders (buying goods and services to resell for profits), state agencies (buying goods and services for public services or transferring them to people in need) and international ones (foreign consumers, producers, intermediary traders and state agencies)

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© POSnipesitorsssbachreen\aiolmas different competitors depending on industry

1,5:

and the number of existing companies tn the industry

Direct public: They can either support or oppose the company's efforts to serve the market The active public 1s a group that 1s interested in the company with good attitudes The search public is a group that the company is seeking for their interest, but does not always succeed The undesirable public is a group that the company is trying to attract their attention, but forced to pay attention to them If they occur The direct public usually includes financial companies, medias, state agencies, loca! direct public, general public and internal direct public

ANALYSIS OF INTERNAL ENVIRONMENT

The internal environment of a company includes all internal elements and systems

such as administration, finance, accounting, production, business, operation,

research and development, marketing, information system, management system, and other functional departments Each one has tts own strengths and weaknesses The strengths can be expressed in the following forms:

Company has the high skills, experiences or manufacturing secrets to achieve low cost and high productivity, to shorten research and development process, and offer excellent customer services with unique advertising and promotion Good facilities such as modern facility systems, great location, abundant capital, large distribution and extensive relationship network

High valued human resources

Organizational and management advantages including good relations with the authorities, financial and banking institutions

Valued intangible assets such as brand image, reputation and customer loyalty High competitiveness

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Lack of important competitive skills and experience

* Lack of valued intangible assets, physical assets, organizations and personnel with high competitiveness

* Weak organizational and management capabilities

* Unstable suppiying sources of input

Weak marketing activities

Determining accurately company’ strengths, weaknesses and special abilities, which are not easy to copy or duplicate, will help it choose appropriate strategies

1.6 SWOT ANALYSIS

SWOT analysis is one of five steps to establish a company’s business strategy including: establishing business principles, analyzing SWOT, identifying strategic goals, forming objectives and strategic plans, and determining the strategic controlling mechanism It not only helps company establish a domestic business strategy, but also have great significance in shaping the international business strategy to meet the company’s development needs If a company wants to develop, gradually create reputation and prestigious brands in the solid and sustainable way, the SWOT analysis is an indispensable stage in the business strategic planning process

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1.7 THE EXTERNAL FACTOR EVALUATION MATRIX — EFE

EFE matrix evaluates external factors, synthesizes and summarizes the major opportunities and threats of the external environment affecting the business operations It helps managers assess the level of company’s reaction to the opportunities and threats, making judgments if the impact of external factors is favorable or not to the company There are five following steps:

e Step 1: Make a list of 10-20 opportunities and threats that are able to influence mainly to the success of the company in the industry or business sector

e Step 2: Classify the importance on a scale from 0.0 (not important) to 1.0 (very important) for each factor The importance of each factor depends on the influence of such factor to the industry The total score of the importance of all these factors must be equal to 1.0

e Step 3: Identify the weight from | to 4 for each factor The weight of each factor depends on the level of company's reaction with each factor The best response

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in the matrix The highest point total 1s 4 and the lowest point total is | If the total

is 4, the company ts responding well to the opportunities and threats If the total is 2.5, the company is responding at the average level to the opportunities and threats

If the total is 1, the company is responding badly to the opportunities and threats 1.8 COMPETITIVE PROFILE MATRIX —- CPM

Setting up this matrix is to identify the comparative evaluation of the company with major competitors in the same industry The comparison is based on the factors affecting the competitiveness of companies in the industry Consequently, managers recognize the strengths and weaknesses of the company compared with competitors, identifying company’s competitive advantages and weaknesses to improve There are five steps in building a competitive profile matrix:

e Step |: Make a list of ten important factors affecting the competitiveness of a company in the industry

e Step 2: Classify the importance from 0.0 (not important) to 1.0 (very important) for each factor The importance of each factor depends on the level of the factor affecting the competitiveness of the company in the industry The total score of the importance of all factors must equal 1.0

e Step 3: Identify the weight from | to 4 for each factor The weight of each factor depends on the ability of the company ranging from | (weak) 2 (average), and 3 (above average) to 4 (good)

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in the industry to assess the company’s competitiveness

1.9 THE INTERNAL FACTOR EVALUATION MATRIX — IFE

Inernal factors are important in every business strategy and business objectives Stategic managers need to establish the matrix with those internal factors to assess th: strengths, weaknesses, and the possibilities to react This analysis helps campany take advantages of strengths and find ways to improve weaknesses The process includes five following steps:

e Step |: Make a list of 10-20 factors, including the strengths and weaknesses affecting company and its business goals

e Step 2: Classify the importance from 0.0 (not important) to 1.0 (very important) for each factor The importance of each factor depends on the level of the factors affecting the success of company in the industry The total score of the importance of all factors must equal 1.0

e Step 3: Define the weight to each factor ranging from | point (weak), 2 points (average), and 3 points (above average) to 4 points (good)

e Step 4: Multiply the importance of each factor with its weight to determine the points of each factor

e Step 5: Sum up points of all factors to determine the total points of the matrix Evaluation: Total points of the matrix ranging from | point to 4 points, will not địpend on the number of important factors in the matrix If the total points are less

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thppd CRAP rekS CVPR WelsiHek on the internal factors If the total points are over 2.5 point, the company ts strong on the internal factors

1.10 SWOT MATRIX

Albert Humphrey, economist, has concretized SWOT into 6 action elements such as

Products (what will we sell); Process (how can we sell); Customer (who will we

investment costs); Management (How do we manage ail these activities)

These elements offer a framework to develop the SWOT’s components to assess It quantitatively and to help work-groups be more responsible The important goal of the process is to achieve agreement between the participating groups, explained by the TAM model (Team Action Management Model) of Albert Humphrey Depending on the specific context, a SWOT analysis model can provide one, or a

few items in the list of six above action elements Whatever the case it will be,

SWOT will basically tell you what is "good" and "bad" in the current business or for a new proposal in the future If SWOT analysis is used to evaluate an idea or proposal, it could indicate that idea or suggestion is effective or not If the object of SWOT analysis is the business and the analyzing target is to improve business, the SWOT will be interpreted as follows:

e Strengths (maintain, build and make leverage)

e Opportunities (optimistically evaluate)

e Weaknesses (remedy to repair or to get rd of weaknesses)

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SUPE GUA FES Psw@fer4#ollled in the appropriate parts of the Irame The qtestions below are only examples and readers can change to suit in each particular aralysis object The important thing ts that the analysis subject should be clearly deined because SWOT ts an overview of an object - maybe a company, a product

a wroject, an idea, a method or an option

1.1 THE STRATEGIC POSITION & ACTION EVALUATION MATRIX — SPIACE

SIACE matrix can be used In the phase 2 of the strategic planning process This mitrix helps enterprises choose the most appropriate strategy among the following stategies: Aggressive, Conservative, Defensive and Competitive The axes of the SIACE Matrix represent two internal factors of the organization (FS - Financial Stength and CA - Competitive Advantage) and two external factors (ES - E:vironmental Stability and IS - Industry Strength) These are important factors deciding the general strategic position of a business Depending on the types of organization, many variables can be located in the axes of the matrix SPACE Six stps to develop the SPACE matrix:

e Step 1 Select a group of variables representing financial strength (FS), competitive advantage (CA), environmental stability (ES) and industry strength (IS)

e Step 2 Assign a numerical value from +1 (worst) to +6 (best) for each variable

of FS and IS factors Assign a numerical value from -1 (best) to -6 (worst) for each variable of ES and CA factors

e Step 3 Calculate the average points for FS, IS, ES and CA by adding the values assigned to the variables of each factor and divided by the number of variables

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* PPEPCo hdd dyvo PMPs e (VdhsiởnaxIs and mark the result on the X axis Add two points on the Y axis and mark the result on the Y axis Mark the intersection of two new points on the X and Y axes

¢ Step 6 Draw a vector from the origin of the SPACE Matrix through the new intersection This vector indicates the strategy category that organizations should choose: Aggressive, Competitive, Defensive, or Conservative

There are 6 steps in building the QSPM matrix:

e Step |: List the elements S, W, O, T taken from the EFE, IFE matrices QSPM

matrix should include 10 external critical successful factors and 10 internal critical successful factors

e Step 2: Classify each internal and external critical successful factor

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* PWETnCbnl{eeessot EieerWtretonin the stapge 2 and identify possible alternative Strategies that organizations can choose Put specific strategies into separate groups There may be many different groups in a business

e Step 4: Determine the attractive score (AS) for each element: the point is ranging from | (not attractive) 2 (less attractive), 3 (quite attractive), to 4 (very

attractive)

e Step 5: Calculate the total attractive score (TAS) in each row by multiplying the points assigned in the step 2 with the score of AS in the step 4 The higher the score is the more attractive strategy 1s

e Step 6: Calculate the total attractive score of each strategy

The most attractive strategy is the strategy with the highest total score in step 6 The strategy building process for enterprises needs to go through three stages with specific tools for each stage The EFE, IFE, and Competitive Profile matrix are used

In the Input and Matching stages The SWOT, SPACE, BCG, IE and Grand Strategy matrix will be used to determine possible feasible strategies for enterprises Finally, the QSPM matrix is used as the unique tool to determine the final strategy The QSPM matrix is formed on the basis of discussions between managers and experts The QSPM matrix determines the attractiveness of the different strategies

by taking advantage or improving major elements of the external and internal environment of the enterprise The number of strategies in a QSPM matrix is unlimited and we can use several matrices to compare different strategy groups However, only strategies in the same group can be compared with each other in the same QSPM matrix The QSPM matrix focuses on the important relationships affecting the strategic decision making process to make the best suitable decisions for the organization The QSPM matrix can be used for all types of organizations, regardless small or large sizes profit or nonprofit purposes In particular, the QSPM matrix can help choose the strategy in multinational organizations because many

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MPDEACiolagiessud BHategegs ig be considered at the same time It can also be successfully used for some small! businesses

„13 MODEL OF MICHAEL PORTER'S 5 FORCES

Chart 1.4 —Michael Porter's 5 forces Suppliers: the number of providers will decide to competitive pressures, the right to negotiate with industry and companies If there are a few big suppliers in the market, more pressures will be on companies, affecting the whole tndustry’s business activities If the supplier’s product quality is good, the company’s ability to change supplier will be lower

Customers (buyers): Customers create competitive pressures affecting the entire industry’s business activities Customers are classified into 2 groups (retailers and distributors) Both groups put pressure on companies in terms of price, product quality and services They control the industry's competition by their purchase decisions Companies need set up customer profiles, customer segmentation to establish suitable strategies and determine the level of competition from customers for the sector in terms of size, importance,

conversion costs and customer information

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¢ PPR Cmhpresss: Préerelsion|s according to Michael Porter, are companies currently not in the industry but may affect the industry in the future The number of potential rivals and their level of pressures on the industry will depend on factors of industry attractiveness (profitability ratio, number of customers, number of companies in the industry) and the entry barriers (technical requirements, capitals, distribution networks, brand names, customer systems, raw material inputs, human resources, government protections .)

e Substitutes: Substitute products are products and services that can satisfy customers’ demands at the same level with products and services 1n the industry Substitute product is the result of applying new technologies Companies need evaluate the number of its substitute products as well as its trend forecast

e Rivalry and industry competition: The internal competitive pressures of the industry create high industry competitive pressures These factors include industry conditions (demand, growth rate, number of competitors), the structure

of the industry (industry concentration or dispersion) and exit barriers (barrier of technology, capital investment, employee’s commitments, governments’ commitments, stakeholders, binding strategies and plans

1.14 COMPETITIVE STRATEGY ON TIME

One of the most important economics principles that people are aware of and comply with ts the time saving rule It’s important in the developed market of high competition because of shorter product life cycles, quick obsolescence and rapidly changing and increasing demands of human beings

Reducing lead-time is the competitive strategy of the time pressure because the industrial customers and consumers are increasingly sensitive to time Saving time helps satisfy customer needs quickly, avoid outmoded inventory, shorten fund cycle and achieve high business efficiency

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“TR BE Cd mipteaso Bpasvergsipnudes time policy order time, production time, transport and delivery Reducing planning time brings many benefits: reduced capital, profits by reducing financial costs shorter responding time to improve

‘ervices and adapt to the market conditions

in “competition on time”, companies need to manage 3 planned aspects:

¢ Time to market: How long does it take to identify market opportunities and transform those opportunities into products or services to bring it to the market?

¢ Time to deliver: How long does it take from the order receiving moment to the delivery? With a shorter product life cycle and the more sensitive market to time, the effective strategy is to provide products or services on the shortest time (process orders quickly, efficiently and on-time delivery - Just in time)

se Time to respond: How long does it take to adjust business corresponding to customer demands?

Strategies to reduce the time (reduce lead-times) to:

¢ Quickly respond to the market changes

e Reduce the required capital for business and increase the capital efficiency

Reduce error forecasts, inventory and fault products

“Competition on time” needs to distinguish between vertical times and horizontal times Vertical times are times spent in the process It may be moving time, producing time, and ordering time Horizontal times are times without incident and therefore raw materials or changing products such as inventory have no value added

to the horizontal time

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VEHICLE INSURANCE BUSINESS AT AAA

The world leading market-analvzing company, Research and Markets, has indicated that Vietnam’s insurance market is one of the fastest growing markets in the world and it offers great opportunities for international insurance companies As stated in the report “Forecast on Vietnam's insurance’ market upon = 2014” (www researchandmarkets com) in June 2012, Research and Markets confirms that the Vietnam’s insurance market has been growing with the double digit number recently and this trend will continue in the coming years The forecasted growth rate

is 22% in the period 2011-2014 The market share for non-life insurance will be increasing in the coming years, specially the increasing demand for products related

to vehicle insurance

Acting as the state management agencies on insurance, the Ministry of Finance and the Department of Insurance Supervisory and Administration will continue to update the legal documents Clear and transparent insurance policies will contribute

to the fairness among economic sectors The Insurance Association continues its role in enforcement of professional ethics and human resources training It will also set up the rules for insurance activities The restructuring programs include:

Project 1: New Decree replacing Decrees 45 and 46/2007/ND-CP (Insurance Law and financial regulation for insurance companies) Expected time: 2016

Project 2: Project to improve the legal framework and management capability of insurance market Expected time: 2019

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“rade, and relevant agencies

\part from that, the vehicle insurance market also has the following opportunities: Foreign direct investment and domestic investment increase rapidly, including investment in infrastructure development and traffic safety

Equalization process 1s at its final stages and government assistance in some

areas will be reduced

Laws and regulations are getting improved and relevant to protect the legitimate rights and interests of customers

High-income class is larger leading to higher demands for vehicles Higher customers’ awareness on insurance needs and its benefits

The insurance market faces potential challenges as follows:

Number of licensed insurance companies is increasing Insurers operating abroad provide some across-border insurance products

Distribution channels of vehicle insurance products have shown weaknesses Lack of efficiency in the technology investment and customer information management (both exploitation and claims refunds stages)

Customer care is not the priority for many companies and the fierce competition

is mostly on insurance premiums

Claims settlements still have many problems

Or 15 February 2012, the Prime Minister signed Decision on development strategy

of Vietnam's insurance market in the period 2011-2020 as follows:

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e The total mobilized funds for the economy from insurers in 2015 will increase

|.7 times compared with that in 2010 and by 2020 increase 3.5 times compared with the figure in 2010, which 1s approximately 3-4% of GDP

e Contribution of the insurance industry to the state budget will be increasing 2 times by 2015 and 4 times by 2020 compared to that in 2010

e By 2015, the objective is to comply with 50% of the insurance management and supervisory principles By 2020, the objective is to be in full compliance with those principles

Companies now will focus on professional and sustainable development strategies Competition on insurance premiums and terms will be gradually replaced by competition on client services In addition, the state management agencies strengthen inspection and control to keep the insurance market healthy

2.1.2 Vehicle insurance products and business scope

According to Vietnam Insurance Association’s statistics, insurance companies still have opportunities to expand and grow As for improving business efficiency, the Ministry of Finance calls for savings, costs reduction by 5% - 10%, insurance company re-arrangement, and insurance market restructure Insurance companies are forced to innovate and improve business capability, executive management, risk management, customer care and fair competition capacity Vehicle insurance includes the products such as civil liability insurance mandatory to vehicle owners; voluntary insurance of vehicle owners, Insurance for drivers and passengers and civil liability insurance for goods on vehicle In this thesis, we will not cover the

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crpiD habohitip ressueceee™Madgiony to vehicle owners and goods on vehicle According to the Ministry of Finance the definition and business scope of other products include

Voluntary civil lability:

e Insured parties’ Vehicle owners and/or owners’ representatives to buy insurance voluntarily

e Insurance coverage: loss of body life and property of the third party caused by vehicles It also includes physical damage and loss of lives caused by vehicles to passengers with transport contract

e Insurance liability: Mandatory insurance liability level to a person is 50 million VND / person For liability in excess of the mandatory responsibility (over 50 million VND / person), the insurance companies have to compensate for vehicle owners the amount that the vehicle owners have to pay based on the degree of fault of drivers and / or vehicle owners against third parties or passengers

Vehicle material insurance:

e Insured parties: Vehicle owners and/or owners’ representatives to buy insurance voluntarily

e Insurance coverage: Insurance companies compensate vehicle owners the material damages caused by accidents beyond the control of the vehicle owners

or drivers in the following cases: collision, crash, flip, drop, fire and explosion

It also covers natural force major accidents such as storms, floods, lightning, earthquakes, hail, landslides or external impact to vehicles such as theft, robbery and other accidents caused by other unexpected risks not mentioned above

e In addition, insurance companies pay necessary and reasonable costs to prevent and limit additional losses They covers expenses to bring damaged vehicles to the nearest repairing center to assess the damages

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e PpPGoea ppesper'PyeadVerhiote owners negotiate the insurance value based on

the actual value in the insurance market at the signing time of insurance

contracts The insurance amount ts the amount that vehicle owners ask insurance

companies to insure for their vehicles and 1s written in the insurance certificate Drivers and passengers insurance

e Insured parties: Drivers, drivers’ assistants and passengers on vehicle

« Insurance coverage: body losses of insured parties caused by accidents directly linked to using vehicle in transport

2.2 OVERVIEW OF AAA ASSURANCE CORPORATION

2.2.1 History and development

Founded in November 2005, AAA joint stock insurance company has on-going efforts to be well positioned in the Vietnamese insurance market By the end of

2011, AAA has established a nationwide operation network in 63 provinces and cities after more than 06 years in operations, including 105 branches, centers and sales offices AAA staffs have continuously developed, both in quantity and quality, with over 800 employees Most of those have high qualifications, sense of responsibility, professional ethics and AAA’s corporate culture This is an important factor to help AAA strengthen, contributing to deploy the mission that the company has committed to customers

AAA has never been framed by insurance products available in the market In contrast, it always focuses on research and co-operation to create additional insurance products suitable to customers’ needs and company’s development path

in the integration trend With the development of the Vietnamese insurance market

in general and vehicle insurance market in particular, AAA and IAG, a leading insurance company in Australia with over 120 years of experience, as shareholder have identified vehicle insurance development as the company’s foundation

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AAA desires to become one of the most dynamic financial institutions in the insurance sector and the financial services industry in general With the mission

“actions to make “insurance” the most meaningful word in Vietnam", AAA puts all efforts to give customers “the right to peace of mind” tn life and future

Right fo peace of mind

“Right to peace of mind” 1s the message the company wants to convey to customers When customers are insured at AAA, they have the right to have peace

in their mind in facing with potential financial losses due to unfortunately incidents

or accidents, which can happen in business or in life This is the principle of the company, meaningful to employees, partners, and shareholders:

e The right to peace of mind of customers

e The right to peace of mind of shareholders and partners

e The right to peace of mind of employees

Business philosophy: “Professional-Creative-Sustainable”

® With professional manners, advanced insurance products quality and

excellent customer services, AAA is committed to satisfy clients’ needs and fulfills all responsibilities to be the unique choice for customers

ˆ AAA is committed to create advanced working environment in line with

international standards It encourages and promotes efforts, creativity, and efficiency to satisty employees needs in term of promotion, career

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PDE YANGFESNM Conversion package The goal is to make AAA the first choice for employees

` AAA regularly conducts researches and assessment on demand and market

changes tn order to create new products to meet customer needs

° The application of information technology in all activities to improve

business and management efficiency as well as service quality

` Rapid and sustainable development is a foundation to move forward and

become a trusted partner with insurance companies tn the region and all over

the world

° Build a corporate culture is a long-term goal to build a unique image of

AAA: an effective and dynamic business environment and a common place for all individuals to contribute and get promoted

2.2.3 AAA organization structure

Apart from its head office, AAA has over 105 branches, business centers and sales offices in 63 provinces and cities nationwide

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Chart 2.1 — Organizational structure

managers to run their own business, also known as decentralized business table AAA has implemented an organizational system for vehicle insurance business as

follows:

e Chairman

e CEO

e COO and Deputy General Director in charge of business

e Vehicle Insurance Director

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Business Managers — Business departments

Dealers/agents system

2.2.4 | Customer base and current partners

Customers are the intangible assets that companies should develop Insurances customers include all types businesses, agencies, enterprises and all population with emphasis on groups of average income levels and solvency This is the company's main customers in the period 2010 -2015 Current customer bases come from company's distribution channels including channels from agents, direct channels, channel operators through brokers, and co-insurances with other companies AAA has divided customers into 2 groups, individual and collective, to deploy vehicle

insurance As AAA concentrates on individuals for vehicle insurance, it has selected

the partners system covering vehicle showrooms, registry centers and the system of vehicle repairing garages nationwide

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NPDES FesHUr PRA E ago Haken advantages of the organization network of

‘ubsidiaries, associated companies, banks, corporate shareholders to establish customer database to sell insurance products, given the customers’ needs as core elements of business operations

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In the period from 2009 to 2011, even with negative impacts of the economic crisis, AAA’s vehicle insurance business growth rates were still at 7% per year on average However, the claim compensation rate in 2010 and 2011 increased dramatically to 62% of vehicle insurance revenue

As appendices 06 — Detail gross written premium and claims expenses in separate financial statement done by Ernst and Young Vietnam Limited

Unit: million

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Chart 2.4 — Vehicle Insurance revenues 2009 — 2011

Based on nationwide branch network, AAA is in a good position to develop the

“Type 2”

insurance market such as the Vietnam central areas where other

companies are trying to penetrate and expand According to AAA’s statistics, the company’s revenues in the last three years are geographically as follows:

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Estimated approx Competitiv

share of total non-life Saturation market

South East HCMC Dong Nai 50% Medium High

Binh Duong, Vung Tau

Long An

Hai Phong Hài Duong Ha Nam Bac Ninh

Nam, Quang Ngai

Tien Giang Kien Giang

Table 2.3: vehicle insurance share of total non-life market in region

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e Insurance business through direct channel was affected by competition on insurance premiums and extended insurance terms Revenue increases despite the high rate of claim compensation Exploitation of this channel was the

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POMCVIN presaoroyres Versigfvenue of voluntary insurance vehicle came primarily from this channel This channel's revenue accounted for more than 80% of the revenue of vehicle insurance business in recent years

e Revenue trom dealers/agents system of voluntary vehicle insurance was not high and accounted for only about 14% of total vehicle insurance revenue Furthermore, the professional knowledge of dealers/agents is not high, which leads to low efficiency (high management expenses and high rate of claim

compensation)

e Revenue through the other channel of vehicle insurance accounted for less than 5% over total sales of this insurance Besides, they usually recommend more favorable terms to customers leading to high competition between the insurance companies and low efficiency The brokers often advise many accompanied insurance products making the insurance premiums higher

Among principal non-life insurance products in the Vietnam insurance market, the compensation claim rate of vehicle insurance is the highest, reaching at 49% The revenue growth rates were positive during the last 2 years but the rate of claim compensation of vehicle insurance had increased from 47% to 62% (15%) while sales rose only 5% for the following reasons:

Objective factors: Poor infrastructure system and poor transportation attitude in Vietnam have led to increasing number of traffic accidents in recent years The rate

of claim compensation for vehicle has increased continuously Other objective

factors include environmental factors floods and natural disasters