Motor vehicle insurance fraud at petrolimex joint stock insurance company period 2000 to 06 month 2006 Analysis and Solution.

HCM UNIVERSITE LIBRE DE RUXELLES UNIVERSITE OUVERTE DE HCM VILLE ECOLE DE COMMERCE SOLVAY MMVCFB PROGRAMME DE MAITRISE EN MANAGEMENT VIETNAM - COMMUNAUTE FRANCAISE DE BELGIQUE NGUYEN

ĐẠI HỌC MỞ - TP HCM UNIVERSITE LIBRE DE RUXELLES

UNIVERSITE OUVERTE DE HCM VILLE ECOLE DE COMMERCE SOLVAY

MMVCFB

PROGRAMME DE MAITRISE EN MANAGEMENT VIETNAM -

COMMUNAUTE FRANCAISE DE BELGIQUE

NGUYEN VAN TUAN

MOTOR VEHICLE INSURANCE FRAUD AT

PETROLIMEX JOINT-STOCK INSURANCE COMPANY

PERIOD 2000 - 06/2006:

ANALYSIS & SOLUTIONS

Ho Chi Minh City, Vietnam

2007

ĐẠI HỌC MỞ - TP HCM UNIVERSITE LIBRE DE RUXELLES

UNIVERSITE OUVERTE DE HCM VILLE ECOLE DE COMMERCE SOLVAY

MMVCFB PROGRAMME DE MAITRISE EN MANAGEMENT VIETNAM -

COMMUNAUTE FRANCAISE DE BELGIQUE

NGUYEN VAN TUAN

MOTOR VEHICLE INSURANCE FRAUD AT

PETROLIMEX JOINT-STOCK INSURANCE COMPANY

PERIOD 2000 - 06/2006:

ANALYSIS & SOLUTIONS

MASTER OF MANAGEMENT THESIS

Advisor

Dr TRAN XUAN KIEM

Ho Chi Minh City, Vietnam

2007

This is my original work Any data, result or quote in the project is clearly identified

NGUYEN VAN TUAN

ACKNOWLEDGEMENTS

I would like to express my sincere thanks to Professor Doctor Tran Xuan Kiem who serves as my local coach and guidance, supports and comments on

my research papers Despite the complexity and scope of the topic, he convinces

me with scientific instructions and valuable suggestions from the very beginning

to the completion of the thesis My great thanks also expressed to professors in the roles of arguments and defense for contributing valued ideas, science and practices, which much encourages me

I would also like to thank deeply Professors of thesis defense committee who spare their time to pay attention to my presentation, give comments and pose valuable questions, which help me to be more comprehensive of the topic

of my thesis My gratefulness extended to the two Directors of the MBA program, Lawyer Doctor Tran Anh Tuan and Prof Nagel, Vietnamese and Belgian professors, coordinators of the MBA Vietnam - Belgium program that I

am honored to follow during the past two years

Last but not least, I am grateful to the Management Board of PJICO, my classmates, colleagues and my beloved family members for providing me with time release to pursuit of the MBA program at Hochiminh City Open University and Solvay Business School/ University Libre of Brussel

CHAPTER I: GENERAL THEORY OF MOTOR VEHICLE

INSURANCE AND INSURANCE FRAUD 1.1 - The objective necessity and the effect of motor vehicle insurance 04 1.1.1 - The role and feature of road traffic 04 1.1.2 - The features of motor vehicle taking part in road transport 04 1.1.3 - Necessity of motor vehicle insurance 05 1.1.4 - The effect of motor vehicle insurance 07 1.2 - The basic content of motor vehicle insurance 07

1.3.2 - Types of motor vehicle insurance fraud 08 1.3.3 - Cause arising behavior of motor vehicle insurance fraud 08 1.3.4 - Consequence of motor vehicle insurance fraud 08 1.3.5 - Insurance fraud of some countries in the world 09

CHAPTER II: SITUATION OF MOTOR VEHICLE INSURANCE FRAUD AT PETROLIMEX JOINT-STOCK INSURANCE

COMPANY PERIOD 2000 - 2005

2.1.1 - History of establishing and developing PJICO 10 2.1.2 - Market share in the non-life insurance market 10 2.2 - Situation of performing motor vehicle insurance 12

2.2.4 - Evaluating business results of motor vehicle insurance 15 2.3 - Status of motor vehicle insurance fraud at PJICO period 2000-2005 16 2.3.1 - Status of insurance fraud period 2000-2005 16 2.3.2 - Cause arising of motor vehicle insurance fraud at PJICO 19 2.3.3 - Consequence of business results due to insurance fraud 20 2.4 - Prevention and disruption of motor vehicle insurance fraud at PJICO 21

2.4.2 - Doubtful symbols of insurance fraudulence 22 2.4.3 - Solutions to prevent and disrupt motor vehicle insurance fraud 23 2.4.4 - Evaluating effect of fraud prevention and disruption 25

CHAPTER III: RECOMMENDATIONS TO REINFORCE

PREVENTION AND DISRUPTION OF MOTOR VEHICLE

INSURANCE FRAUD AT PJICO

3.1.3 - Enhancing agent’s sense of profession 28

3.2 - Recommendations to Association of Vietnamese Insurers 29 3.3 - Recommendations to the State’s organizations 30

References

LIST OF TABLES

2.1 Management cost of motor vehicle insurance from 2000 to

LIST OF GRAPHS

1.1 Number of motors registered from 2000 to 11/2006 05 1.2 Number of automobiles registered from 2000 to 11/2006 05 1.3 Road traffic situation of Vietnam from 1991 to 2006 06 2.1 Market share of non-life insurance companies year 2003 11 2.2 Market share of non-life insurance companies year 2004 11 2.3 Market share of non-life insurance companies in 2005 11 2.4 Premium income of the year 2004 & 2005 12 2.5 Growth rate of motor vehicle premium income 13

LIST OF ABBREVIATIONS

ALFA Agence pour la lutte contre la fraude à l’assurance AVI Association of British Insurers

AVI Association of Vietnamese Insurers

IBC Insurance Bureau of Canada

UAP Union des Assurances de Paris

GLOSSARY Assured: The same as an “Insured”, “Policyholder”, or someone has an insurance policy

Claim: Any request or demand for payment under the terms of the insurance policy

Cover: A policy covering a number of types of loss or damage Policies may also offer additional benefits such as medical expenses and legal costs Deductible: The specified amount a loss must exceed before a claim is payable Only the amount that is in excess of the deductible is recoverable Depreciation: The decrease in value of any property due to wear, tear, and/ or time Generally, depreciation is no an insurable loss

Excess: An amount of money that the policyholder has to pay towards the cost

of a claim

Exclusion: Restriction in your insurance policy that limits and may exclude coverage for certain perils, persons, property or locations

Fraud: Deliberate trickery intended to gain an advantage

Fraudster: Person who makes fraud

Insurance fraud: The act of falsifying or exaggerating the facts of an accident

to an insurance company to obtain payment that would not otherwise be made

Third party: Person or entity not party to an agreement but with an interest in the agreement

COMMENTS OF THE COUNSELLOR

Subject: Motor Vehicle Insurance Fraud At Petrolimex Joint-Stock

Insurance Company in the Period 2000-2006: Analysis and Solutions

Student: NGUYEN VAN TUAN

I On The Formality :

The thesis has a well-defined structure, with logical sections and sub-sections The style and reasonings are clear The thesis presents data, images, tables, graphics and charts which illustrate well the arguments The Bibliography is properly established

II On The Contents :

In Chapter 1 of the Thesis, the author outlines the theoretical basis

of motor vehicle insurance and insurance fraud Chapter 2 presents the situation of motor insurance fraud at Petrolimex Joint-Stock Insurance Company in the period of 2000-2005 Chapter 3 suggests recommendations to reinforce prevention and disruption of motor vehicle insurance fraud at PJICO

The author has proved to master properly basic theorical knowledge of the subject matter, as well as to apply it to analysing it in the insurance business praxis

The author knows well how to pose the question, to limit the issue, and to collect a plentiful range of information in order to analyse and evaluate the concrete situation aiming at suggesting solutions to the problem

This work meets the requirements of a MBA dissertation We recommend the jury allows NGUYEN VAN TUAN to present this thesis, with our own evaluation: Assessing the formality and the contents, this thesis gets Good rating, 9/10

The Counsellor

Tran Xuan Kiem, DBA

THE FIRST ARGUMENT

THE SECOND ARGUMENT

Motor vehicle insurance fraud at PJICO period 2000-06/2006: Analysis & Solutions

MOTOR VEHICLE INSURANCE FRAUD AT

PETROLIMEX JOINT-STOCK INSURANCE COMPANY

PERIOD 2000 - 06/2006:

ANALYSIS & SOLUTIONS

INTRODUCTION

1 - The reason to choose the subject

Nowadays, together with higher and higher development of science and technology, means of transport is also improved modernly and significantly with the speed of hundreds of miles per hour such as: airplane, train, automobile, ship But, with the effort of human as well as the assistance of science and technology, we have not yet rejected all the traffic accidents which are happening increasingly and the loss is bigger and bigger, sometimes like disaster In order to compensate for the life and property loss happened accidentally to the owners, insurance for means of transport is an effectively solution at the present

However, to any development, there is always the negative to go with it

As per insurance industry, the act of insurance fraud has been actually becoming a threat to the profit target of all the insurance companies in Vietnam

in general, and of Petrolimex Joint-Stock Insurance Company (abbreviated as PJICO) in particular Now, we should give a cursory glance at the situation of motor vehicle insurance compensation of Vietnamese non-life insurance companies in the first half of the year 2006

Motor vehicle insurance fraud at PJICO period 2000-06/2006: Analysis & Solutions

The ratio of the total compensation payment to the total premium income is that: Bao Viet with 51.21%, Bao Minh with 49.40%, PTI with 55.75%, PVIC with 21.11%, others with 45.39% and especially PJICO with 68.69% These figures indicate that the ratio of PJICO is the highest one of all What has influenced on the high ratio? Is there any fraudulence in survey & claim activities? To understand this problem somewhat, with my employment experience at PJICO Gia Dinh - the Branch of Petrolimex Joint-Stock

Insurance Company, I have decided to choose the subject of “Motor vehicle

Insurance Fraud at Petrolimex Joint-Stock Insurance Company period 06/2006: Analysis & Solutions” to do as my thesis

2000-2 - The aim of the subject

To make clear the problem of motor vehicle insurance fraud, the subject comes to the research of the real situation at PJICO with real figures and examples illustrated From that, the research will bring forward the detailed methods to make good and perfect the prevention and disruption of insurance fraudulent acts

3 - The object and scope of the research

The research object of the thesis is fraudulent in motor vehicle insurance

at Petrolimex Joint-Stock Insurance Company

The research scope of the thesis is collecting and analyzing the data from the year 2000 to 06/2006

4 - The research method

The research method of the thesis is investigating, reckoning up, surveying, analyzing, comparing and synthesizing data to obtain the advanced purpose The thesis is using the knowledge of scientific theory and considers

Motor vehicle insurance fraud at PJICO period 2000-06/2006: Analysis & Solutions

the Vietnamese real conditions in the insurance industry to bring forward necessary recommendations

Needed information:

- Secondary information:

• Development strategy and policy of Vietnamese insurance industry

• Summary reports specialized in insurance industry

• PJICO's annual summary reports

• Experience in carrying out solutions to prevent and disrupt insurance fraud at insurance companies in Vietnam

- Primary information:

• Interviewing, discussing with insurance experts and PJICO's steering committee

5 - The structure of the thesis content

Including Introduction, Conclusion and three chapters as follows:

• Chapter 1: The general theory of motor vehicle insurance and

insurance fraud

• Chapter 2: The situation of motor vehicle insurance fraud at

Petrolimex Joint-Stock Insurance Company

• Chapter 3: Some recommendations to reinforce the task of

preventing and disrupting motor vehicle insurance fraud at Petrolimex Joint-Stock Insurance Company

Motor vehicle insurance fraud at PJICO period 2000-06/2006: Analysis & Solutions

CHAPTER I:

THE GENERAL THEORY OF MOTOR VEHICLE

INSURANCE AND INSURANCE FRAUD

1.1 - THE OBJECTIVE NECESSITY AND THE EFFECT OF MOTOR

VEHICLE INSURANCE

1.1.1 - The role and feature of road traffic

The transport industry has a very important role because it can influence directly or indirectly on almost other industries, such as: economy, culture, society, and national defense and security In the trend of globalization, the transport is a basic condition for the process of integrating into the world, a standard to consider the development of each nation It is clear that the transport can decide the expansion of the economic relations, goods exchanges among regions and countries

Indeed, the network of transport is attaching to an special importance and enlarged with the quality higher and higher, especially road transport, waterway transport, rail transport and air transport Among them, the road transport by motor vehicle is the most popular with the features such as: fast transport, moderate cost, simple and convenient use, popular transport means and wide operation network

1.1.2 - The features of motor vehicle taking part in road transport

The number of motor vehicles is increasing day by day This is a cause leading to more and more traffic accidents with higher and higher seriousness

In nearly 7 years (from 2000 to 11/2006), the number of motors produced locally and imported reached to over 12,823,000 units, and automobiles

Motor vehicle insurance fraud at PJICO period 2000-06/2006: Analysis & Solutions

assembled locally and imported reached to 500,300 units, increasing by 18,400,000 motors and 965,000 automobiles

Graph 1.1: Number of motors registered from 2000 to 11/2006

Graph 1.2: Number of automobiles registered from 2000 to 11/2006

(Source: National Traffic Safety Committee) (http://portal.mt.gov.vn:8081/ATGT/upload/TNGT1990-2005.htm)

1.1.3 - The necessity of motor vehicle insurance

1.1.3.1 - Road traffic situation of Vietnam from 1991 to 2006:

Together with the fast development of overland transport network, more and more traffic accidents have been a threat of the society That is the first interest of the State, stinging problems to not only the transport industry but also every industries and levels in every spheres Today, the society’s public opinion is concentrating on reflecting severely traffic accidents and its seriousness To understand this point further, have a look at the below graph

Motor vehicle insurance fraud at PJICO period 2000-06/2006: Analysis & Solutions

Graph 1.3: Road traffic situation of Vietnam from 1991 to 2006

(Source: National Traffic Safety Committee) (http://portal.mt.gov.vn:8081/ATGT/upload/TNGT1990-2005.htm)

From the year 1996 to 2001, there were 21,078 accidents each year on average, causing 6,995 persons died and 24,115 injured As per 2002, these figures were highly increasing to 27,134 accidents, 12,800 persons died and 30,733 injured The following years, though the number of accidents was going down, the number of the dead was still high

1.1.3.2 - Necessity of motor vehicle insurance:

According to the survey of accidents, 80% of people controlling motor vehicles are bread-winners in families and organizations When accidents happen, the first loss that has to be mentioned is life and this arises series of consequence: loss income (for families), business interruption (for enterprises) which badly influences on the economy Alternatively, traffic accidents are damaged to not only drivers but also others and property The question is that when the sufferer’s interest is not guaranteed, who comes forward with compensation? Obviously, the need of setting up a common fund to compensate for both sides’ damages is objectively indispensable

Saying so to realize that motor vehicle insurance for not only physical

Motor vehicle insurance fraud at PJICO period 2000-06/2006: Analysis & Solutions

damage but also civil liability at a minimum level is necessary and matches the real demand of life

1.1.4 - The effect of motor vehicle insurance

1.1.4.1 - To individuals:

The accidental risk causes the damages of life and property to the victim and the shock of spirit to his family Motor vehicle insurance comes to life to contribute the stable finance, overcome the loss of the victim

1.2 - THE BASIC CONTENT OF MOTOR VEHICLE INSURANCE

Motor vehicle insurance is comprised of different types and divided into two: Compulsory Insurance and Voluntary Insurance

- Compulsory Insurance:

+ Civil liability insurance for motor vehicle owner

+ Civil liability of motor vehicle owner for passengers

- Voluntary Insurance:

+ Motor vehicle physical damage insurance

+ Motor vehicle owner’s civil liability to goods in transit

+ Personal accident insurance of riders on non-passenger service car and driver, assistant driver

Motor vehicle insurance fraud at PJICO period 2000-06/2006: Analysis & Solutions

1.3 - MOTOR VEHICLE INSURANCE FRAUD

1.3.1 - Insurance fraud

With strong growth of non-life insurance market, more people increasingly buy motor vehicle insurance and its market has expanded rapidly However, among of those who really need to buy insurance for their life protection, stability in case of risks, there have been a lot of insurance buyers taking advantage of insurance to make profits for their own interests illegally That is the act of insurance fraud

1.3.2 - Types of motor vehicle insurance fraud

To practice insurance fraud act, owners of motor vehicles use many of sophisticated tactics, including:

- Rationalizing the day of accident and of insurance

- Altering accident details

- Producing counterfeit site

- Claim more than actual damage

- Double insurance

- Accident due to wilful act

1.3.3 - Cause arising behavior of motor vehicle insurance fraud

Insurance fraud is the act of breaking the law that causes not only damages to the property of the enterprise but also deficits to the budget of the State Individuals, organizations who take part in this act all have more or less cupidity that changes into action when having the promotion of favorable conditions and factors

1.3.4 - Consequence of motor vehicle insurance fraud

Motor vehicle insurance fraud at PJICO period 2000-06/2006: Analysis & Solutions

1.3.4.1 - To insurance companies:

Causing a decrease of profit and obviously an influence on the prestige

of the company

1.3.4.2 - To the State and society:

Behind the fraud cases having the abetment from some officers of the State, there will be more and more the status of defying the law, disturbing the social orders

1.3.4.3 - To customers:

Fraud inflates the cost of customers’ insurance and honest customers will suffer a loss for the acts of insurance fraud that are not detected by insurance companies

1.3.5 - Insurance fraud of some countries in the world

Nowadays, when the global economy has developed with a rapid rate, the demands of life are also increasing thereof When almost all activities of the life are insured, it is a logical necessity that there will be more or less formals of insurance fraud The phenomenon of insurance fraud has become popular in almost countries with damages bigger and bigger For example: In South Africa, the claims suspicious of fraud is from 8 to 35% of total claims; In Germany, this figure is 10%; New Zealand: 15% Insurance fraud has, on average, caused the loss of USD 94 billion per year for the American insurance industry It has been proved statistically that among 4 fires, there was one fire caused with wilful act for insurance fraud Thanks to the serious status of insurance fraud, every American household pays more from USD 200 to USD

300 per year for increasing insurance premium For this reason, in the world, insurance fraud prevention and disruption have been paid much attention to by insurance companies

Motor vehicle insurance fraud at PJICO period 2000-06/2006: Analysis & Solutions

CHAPTER II:

SITUATION OF MOTOR VEHICLE INSURANCE FRAUD

AT PETROLIMEX JOINT-STOCK INSURANCE COMPANY

PERIOD 2000 - 2005

2.1 - ABOUT PJICO

2.1.1 - History of establishing and developing PJICO

Petrolimex Joint-Stock Insurance Company was established on 15 June

1995, including 7 founding shareholders who are huge economic organizations

of Government with potential and reputation both domestic and abroad

Since its establishment, PJICO has constantly developed and by now ranked the third position in Vietnam non-life insurance market PJICO takes about 13% market share in 2005 with the total premium income of nearly VND 730 billion, having now become one of the leading market players in several types of insurance such as: Motor vehicle, Marine, CAR&EAR insurances

2.1.2 - Market share in the non-life insurance market

PJICO was considered to be the fastest developing company in the Vietnamese non-life insurance market, with the annual average growth of 60% Indeed, in 1995, the Vietnamese insurance market comprised of only three companies: Bao Viet, Bao Minh and Bao Long One year later, PJICO got 4.08% of market share and this figure was increasing year by year In 2003, PJICO’s market share reached 8.75% and 2004 of 12.39%, ranked the third position in non-life insurance market (after Bao Viet and Bao Minh) In 2005, PJICO took around 13% market share, considerably narrowing the gap between

Motor vehicle insurance fraud at PJICO period 2000-06/2006: Analysis & Solutions

PJICO and the market leader

Graph 2.1: Market share of non-life insurance companies year 2003

(Source: Vietnamese insurance market year 2004 - Ministry of Finance)

Graph 2.2: Market share of non-life insurance companies year 2004

(Source: Vietnamese insurance market year 2004 - Ministry of Finance)

Graph 2.3: Market share of non-life insurance companies in 2005

(Source: Annual report year 2005 - PJICO)