distribution channels management at bao viet insurance corporation

Requirements for managing distribution channel for non-life insurance products at BVI...28 3.2.. Basing on the theories on managing distribution channels together withprimary data and se

Khac Dung who enthusiastically guided and supervised the duration of my thesiswriting The thesis was completed owing to his valuable instructions, correction andcomments.

Secondly, I would like to express my great thanks to all of the lecturers fortheir interesting lectures during the course

The thesis was also completed with the help from my leaders and colleagues

in Bao Viet Insurance Corporation

Last but not least, I would like to say many thanks to my friends and familyfor giving me encouragement and supports during my studying time and completion

of this thesis

Hanoi, October 2013

TRUONG DUC ANH

TABLE OF CONTENT

LIST OF TABLES 2

LIST OF FIGURES 2

EXECUTIVE SUMMARY 3

CHAPTER 1- INTRODUCTION 5

1.1 Rationale 5

1.2 Research Objectives 6

1.3 Research Questions 6

1.4 Research Methodology 6

1.4.1 Research Process: 6

1.4.2 Secondary data collection 7

1.4.3 Primary data collection 8

1.4.4 Data analysis 8

1.5 Research Scope 9

1.6 Thesis Structure 9

CHAPTER 2- THEORETICAL BACKGROUND ON MANAGING DISTRIBUTION CHANNELS FOR NON-LIFE INSURANCE PRODUCTS 10

2.1 Distribution channels and non-life insurance products 10

2.1.1 Nature of distribution channel 10

2.1.2 Characteristics of non-life insurance 12

2.2 Managing distribution channel 14

2.2.1 Selecting members for distribution channel of non-life insurance products 14

2.2.2 Motivating members for distribution channel of non-life insurance products 17

2.2.3 Evaluating members for distribution channel of non-life insurance products 19

2.3 Factors impacting on managing distribution channels for non-life insurance products 20

2.3.1 External factors 20

2.3.2 Internal factors 20

CHAPTER 3- CURRENT SITUATION OF MANAGING DISTRIBUTION CHANNEL AT BVI 22

3.1 Overview on BVI 22

3.1.1 Brief information 22

3.1.2 Requirements for managing distribution channel for non-life insurance products at BVI 28

3.2 Analyzing the current situation of managing distribution channel at BVI 30

3.2.1 Current situation of selecting channel members 30

3.2.2 Current situation of motivating channel members 35

3.2.3 Current situation of evaluating channel members 41

3.3 Achievements and shortcomings of managing distribution channel at BVI 42

3.3.1 Achievements of managing distribution channel at BVI 42

3.3.2 Shortcomings of managing distribution channel at BVI 43

3.3.3 Causes of shortcomings of managing distribution channel at BVI 44

CHAPTER 4- SOLUTIONS TO IMPROVE THE MANAGING OF DISTRIBUTION CHANNEL AT BVI 46

4.1 Development orientations of BVI for managing distribution channel 46

4.1.1 General development orientations of BVI 46

4.1.2 Development orientations of BVI for managing distribution channel 46

4.2 Solutions to improve the managing of distribution channel at BVI 48

4.2.1 Solutions for selecting channel members 48

4.2.2 Solutions for motivating channel members 49

4.2.3 Solutions for evaluating channel members 51

4.3 Recommendations 52

4.3.1 Recommendations to BVI 52

4.3.2 Recommendations to agencies 54

CONCLUSION 57

LIST OF REFERENCES 58

APPENDIX 1- IN-DEPTH INTERVIEW WITH DIRECTOR OF AGENT MANAGEMENT DEPARTMENT AT BVI 60

APPENDIX 2 - QUESTIONNAIRE 61

BAO MINH….Bao Minh Insurance Corporation

PJICO……… Petrolimex Insurance Corporation

PVI………… PetroVietnam Insurance Joint Stock Corporation SMEs……… Small and Medium Enterprises

LIST OF TABLES

Table 2.1: Basic differences of services compared to goods………13

Table 3.1: Some business indicators of BVI in 2010-2012……… 25

Table 3.2: BVI’s staff qualification in 2012……….26

Table 3.3: The number of agents in the non-life insurance market in VN 2012… 42

Table 3.4: The number of agents and turnover through agents in 2010-2012…….42

Table 3.5: Turnover of agents in 2012 by lines of business……….43

Table 3.6: The average growth rate of premium turnover per agent ……… 44

LIST OF FIGURES Figure 1.2: Research Process ……… 7

Figure 2.1: Direct and indirect channels……… 12

Figure 3.1: Organizational structure of BVI……….24

Figure 3.2: BVI’s premium by lines of business……… 27

Figure 3.3: Agent recruitment process at BVI……… 30

Figure 3.4: References for recruitment……….33

Figure 3.5: Sources of recruiting……… 34

Figure 3.6: Evaluation on business supporting activities of BVI……….36

Figure 3.7: Evaluation on commission policy of BVI……….………….37

Figure 3.8: Evaluation on training program of BVI……….………39

Figure 3.9: Evaluation on emulation programs of BVI………41

EXECUTIVE SUMMARY

The effective management of the distribution system has been the keymanagement issue for any company to enhance its competitiveness as distributionchannel is considered as the bridge between producer/supplier and final user orcustomer However, the management of the distribution channels at BVI is stillineffective while the competition in the non-life insurance market in Vietnamincreasingly become fierce following the international integration Havingrecognized of this, the objectives of this research are formulated as follows:

- To clarify the requirements for managing the distribution channels for life insurane products

non To analyze the management of the distribution channels for nonnon lifeinsurance products at BVI

- To suggest recommendations for BVI to improve the management ofdistribution channels for non-life insurance products

Basing on the theories on managing distribution channels together withprimary data and secondary data, the author has analyzed current situation ofmanaging distribution channels at BVI including selecting channel members,motivating channel members and evaluating channel members to find outshortcomings of managing distribution channels at BVI and causes of theseshortcomings The findings are as follows:

- The selection of agents is still ineffective Many agents, after being selectedand working, left BVI and moved to other insurance companies or found a new job

in other field

- Turnover of agents mainly come from the two lines of businesses namelymotor vehicle insurance (59.77%) and personal accident insurance (20.83%) whileturnover from other lines of businesses is still low

- The average growth rate in turnover per agent is on the downward trend

- The company has not yet put resources on supporting agents to sellinsurance products and loosened the creation of sales channels for agents

- The evaluation of member channels is mainly based on turnover indicatorwhile ignoring the effectiveness and profit

Basing on the development orientation of BVI for managing distributionchannel, the author has proposed recommendations for BVI to improve themanaging of distribution channel such as:

- Improving agent selection:

+ To set up selection standards more specifically for each position

+ BoD’s direct participation in recruitment

+ To refer to reliable sources of recruitment

- Improving agent motivation:

+ To work out policies to increase income of channel members

+ To effectively organize collective activities and movement

+ To have a proper remuneration and discipline regime

- Improving agent evaluation:

+ To better audit agent performance through such criteria as sellingcapabilities, their attitudes and competition they faced and underwritingeffectiveness in order to have recommendations for corrective actions to reduce thenumber of inadequate performances

The author hopes that these recommendations will help BVI to sustain itsfirst largest position in the non-life insurance market and increase profits as well

CHAPTER 1 INTRODUCTION 1.1 Rationale

Non-life insurance companies in Vietnam have been marketed variousinsurance covers either directly or through different distribution channels includingindividual agents, corporate agents and brokers The insurance marketplace isundergoing a transformation that may eventually lead to significant changes in howconsumers purchase insurance products Besides, globalization has madecompetition in the non-life insurance market become fierce with the establishment

of foreign companies which have excellent insurance knowledge, good selling andunderwriting experiences as well as modern information technology This requireslocal companies to have proper management and organization of distributionchannels

Established in 1965, Bao Viet Insurance Corporation (BVI) is the oldest and thefirst largest non-life insurance company in the Vietnamese market From itsestablishment, the company has developed the biggest sales network of 67 membercompanies in 64 provinces across the country The company provides main lines ofbusinesses like personal accidents & healthcare, marine hull and cargo, motorvehicle, and fire and engineering insurance

At present, the company is marketing its insurance products through the direct andindirect distribution channels Each distribution channel has its own advantages anddisadvantages during the distribution process The direct channel is suitable withtraditional customers and corporate customers while the indirect channels areeffective with individual and small business household customers

Yet like other players in the market, managing distribution channels at BVI is stillpoor and receives unsufficient investment Turnover growth rate through thesechannels has been declined in recent years and the number of agents has witnessedchanges BVI’s leadership has recognized the importance of managing moreeffectively the distribution channels so that the company can increase its growth

rate and competitiveness and reach its development targets in the context of fierce

competition in the market That’s why, I chose the research topic “Distribution Channels Management at Bao Viet Insurance Corporation” to find out

achievements and shortcomings of managing distribution channels in the companyand to suggest recommendations to manage distribution channels more effectively,contributing to the development of the company

1.2 Research Objectives

This research is designed to:

- Clarify the requirements for managing the distribution channels for non-lifeinsurance products

- Analyze the managing of the distribution channels for non-life insuranceproducts at BVI

- Suggest recommendations for BVI to improve the managing of distributionchannels for non-life insurance products

1.3 Research Questions

- What is the nature of distribution channels?

- What are the characteristics of non-life insurance?

- What were the concepts of managing distribution channel?

- What are the main factors affecting the managing of distributionchannels?

- What are the requirements for managing the distribution channels fornon-life insurance products at BVI?

- What BVI can do to improve the managing of their distributionchannels?

1.4 Research Methodology

1.4.1 Research Process:

Figure 1.2: Research Process

Source: Drawn by Author

1.4.2 Secondary data collection

The secondary data is sourced from the company’s reports, the market’sreports, magazines, textbooks and the internet

The data from textbooks and the internet provided the author with theories

on managing distribution channels and non-life insurance

Information on the current situation of the non-life insurance market andcompetitors was sourced from market reports, magazines and the internet

BVI’s internal documents like company reports, development strategy, etc.and market reports provided the author with information on the company’sturnover, growth rate, market share, requirements for managing distributionchannels for non-life insurance products, etc

Collecting

secondary data: books,

magazines, market reports

Collecting secondary data

about BVI: company’s

reports, strategies,

website, etc

Requirements for managing distribution channel for non-life insurance products at BVI

Current situation of managing distribution channels of non-life insurance products at BVI

Recommendations

to improve the managing of distribution channel for non-life insurance products at BVI

- In-depth interviews with

managers

- Questionnaires

1.4.3 Primary data collection

Colleting primary data is very essential because it reflects fully the neededinformation for the research The author collected primary data through the methods

of in-depth interviews and questionnaires

(i) In-depth interview: The author interviewed the manager of the agent

managing department and collected information on the evaluation of the currentsituation of BVI’s agent management including achievements and shortcomings inmanaging this channel and reasons for the shortcomings

(ii) Survey:

- Purpose: the survey is conducted to get the agents’ evaluation of themotivation and supports from BVI

- Respondents: current agents of BVI

- Sample size: 400 agents

- Sampling method: The author used the systematic sampling Firstly, theauthor had the list of agents in Hanoi sorted by name including more than

5000 agents The author chose randomly one name and every 12 names theauthor chose one for sampling

- Questionnaire designing:

 The questionnaire contains 13 questions

 The questionnaire is constructed mainly with multiple choice

questions

 The questionnaire is detailed in Appendix 2

- Modes of data collection: email

- Implementation: 400 questionnaires were sent to 400 agents in Hanoi Yetonly 103 questionnaires were returned, accounting for 26% of the sample

1.4.4 Data analysis

Regarding the survey data, the author uses Microsoft Excel software toanalyze the information

The in-depth interview will provide themes for evaluating current situation

of managing distribution channel at BVI

The secondary data is used to calculate some indicators presenting thecurrent performance of BVI as well as its position in the non-life insurance market

1.5 Research Scope

- Research objects: The thesis focused on analyzing the managing of thedistributions channels at BVI that includes selecting channel members, motivatingchannel members and evaluating channel members Because of limited time, theauthor focused on agent distribution channel only

- Geographical scope: The survey will be conducted in Hanoi

 Chapter 2 : Theoretical background on managing distribution channels for

non-life insurance products

 Chapter 3 : Current situation of managing distribution channel at BVI

 Chapter 4 : Solutions to improve the managing of distribution channel at

BVI

CHAPTER 2 THEORETICAL BACKGROUND

ON MANAGING DISTRIBUTION CHANNELS FOR

NON-LIFE INSURANCE PRODUCTS 2.1 Distribution channels and non-life insurance products

2.1.1 Nature of distribution channel

Distribution channel is a flexible method that helps a company to implementthe same business objective or a bridge connecting the producer to consumer Thereare many different ways to define what distribution channel is

In a general way, distribution channel is “path” or “pipeline” through whichgoods and services flow in one direction (from vendors to consumers), thepayments generated from them flow in the opposite direction (from consumers tovendors) A distribution channel can be as short as being direct from the vendor tothe consumer or may include several inter -connected (usually independent ormutually dependent) intermediaries such as wholesalers, distributors, agents,retailers, etc Each intermediary receives the item at one pricing point and moves it

to the next higher pricing point until it reaches the final buyer.(http://www.businessdictionary.com/definition/distribution -channel.html)

The above is the general definition of distribution channel However, itdiffers as of the types of products and services provided by the vendors.Furthermore, it differs as of the characteristics each product or service possesses

Additionally, how long or short the distribution channel is depends on thetypes of products and services and the way distribution channel is organized, i.e thedistribution strategy of vendors

There are two reasons that a company’s distribution decision is critical to itssuccess according to Philip Kotler, 2005 in “Principles of Marketing An AsianPerspective”

Firstly, it will affect all marketing decisions How are the trainings needed orhow to manage motivation activities effectively and how to support its distributionchannels Whether a company develops or acquires certain new products maydepend on how well those products fit the capabilities of its channel members

Secondly, establishing a distribution channel is to build long-termcommitments to other firms involving business to business relations and hence isnot easy or as flexible to change as other marketing decision

Moreover, using distribution channel will bring greater efficiency to targetmarket Through their contacts, experience, specialization and scale of operation,intermediaries offer the firm more than it can achieve on its own In making serviceavailable to customers, distribution channels add value by bridging the major time,place and possession gaps that separate services from those who would use them

The main function of a distribution channel is to provide a link betweenproduction and consumption It fills the gap of places, time from producers toconsumers Organizations that form any particular distribution channel performmany key functions as follows:

- Information: Gathering and distributing market research and intelligence –important for marketing planning

- Promotion: Developing and spreading communications about an offer

- Contact: Finding and communicating with prospective buyers

- Matching: Shaping and fitting the offer to the buyer’s needs, includingactivities such as manufacturing, grading, assembling, and packaging

- Negotiation: Reaching an agreement on price and other terms of the offer

so that ownership or possession can be transferred

- Physical distribution: Transporting and storing goods

- Financing: Acquiring and using funds to cover the costs of the channelwork

- Risk taking: Assuming the risks of carrying out the channel work

Consumers

IntermediariesDirect

The figure below shows general distribution channels in marketing:

Figure 2.1: Direct and indirect channels

Source: Marketing Management (Philip Kotler)2.1.2 Characteristics of non-life insurance

Insurance business is a service sector; therefore the marketing processbelongs to the service marketing As a service, the character of insurance include:Intangibility, inseparability, Variability and Perish ability

- Intangibility

It is not tied to a physical product It is created through a negotiation process,

an agreement between an insured and an insurance company and the result isexposed to be the insurance policy No physical commodity is sold in this process,only the contract with the commitment to fulfill the future obligation: the insuredagrees to pay the premium and the insurance company commits to indemnify thelosses or damage in case of happen

In insurance sector, insurers apply and combine various factors in order togenerate their product of providing, maintaining and fulfilling insurance coverage.However, it is different with the production of material goods The production ofmaterial goods involves in many process: designing, pressing, rolling,

punching….while the production of insurance coverage involves designing,underwriting, statistic, conducting survey, rating,…

As Christopher Lovelock and Lauren Wright, there are nine basic differencesthat can help us distinguish the task associated with service marketing andmanagement from those involved with physical goods

Table 1.1: Basic differences of services compared to goods

11 Customers do not obtain ownership of services

22 Service products are intangible performance

33 There is greater involvement of customers in the production process

44 Other people may form part of the product

55 There is greater variability in operation inputs and outputs

66 Many services are difficult for customers to evaluate

77 There is typically an absence of inventories

88 The time factor is relatively more important

99 Delivery systems may involve both electronic and physical channel

Source: Principles of Services Marketing and Management (Christopher Lovelock

& Lauren Wright, 2002)

2.2 Managing distribution channel

Managing channel of distribution is managing a bridge to reachingcustomers It aims to make and drive channel to complete its functions as a part ofcompany’s marketing strategy

Managing distribution channel should include selecting, motivating andevaluating channel members

2.2.1 Selecting members for distribution channel of non-life insurance products

Companies must carefully select channel intermediaries When selectingintermediaries, the company should determine what characteristics distinguishingthe better ones

The selection of channel members is carried out regularly even when there is

no change in channel structure because in fact companies can want to expandmarket or select new members to replace members who leave the channel Theselection process consists of the three steps as follows:

- To find prospective channel members:

+ Field sales organizations: outside sales people represent an excellentresource for finding new channel members

+ Trade sources: trade associations, trade publications, directories, otherfirms, trade shows, and the “Grapevine”; but trade associations are the most specificsources of information.

+ Reseller inquiries: from intermediaries interested in handling their productline Those firms receiving the highest numbers of inquiries from prospectivechannel members are the most prestigious ones in their respective industries

+ Customers: manufacturers report that many customers are willing to givefrank opinions about intermediaries who call on them Best ways: informal orformal survey of their views of various distributors in their market areas

+ Advertizing: trade magazine advertizing can generate a large number ofinquiries from prospective channel members and therefore can provide a large poolform which to make selections

+ Trade shows: manufacturers who are often unknown in their industrieshave a chance at the shows to meet face to face many wholesalers and retailers whomight be interested in carrying their products

+ Other sources: Chambers of commerce, banks, local real estate dealers,classified telephone directories or yellow pages, direct mail solicitations, contractsfrom previous applications, independent consultants, brokers, business databases,internet

- To apply selection criteria to determine the suitability of prospective channel members:

+ Having developed a list of prospective channel members, the next step is toappraise these prospects in light of selection criteria

+ No matter how carefully developed, no list of criteria is adequate for a firmunder all conditions

+ Channel managers should be flexible in the use of selection criteria toallow for changing conditions The followings are some of Pegram’s criteria:

i.) Credit and financial condition: most frequently used criterion for judgingthe acceptability of a prospective channel member

ii.) Sales strength: sales capacity of prospective intermediaries as criticalcriterion

iii.) Sales performance: whether the prospective intermediary can capture asmuch market share as the manufacturer expects

iv.) Attitude: prospective intermediary’s aggressiveness, enthusiasm andinitiative are believed to be closely related to long-term success in handling themanufacturer’s product

- To secure the prospective channel members as actual channel members:

The selection process is a two way street: it is not only the producer ormanufacturer who does the selecting, but also the intermediaries at both thewholesale and retail levels Those who are large and well established can be veryselective about whom they will represent

Generally, the more specific the manufacturer can be in spelling out whatkinds of support and assistance will be offered to channel members, the better.There are many possible inducements that the manufacturer might offer, but most ofthem would fell within one of the four areas: profitable product line, advertising andpromotional support, management assistance, and fair dealing policies and friendlyrelationships

+ Product line: It is especially important for manufacturers whose productsare not as well known to do a good job of communicating the benefits of handlingtheir products from the channel members’ point of view

+ Advertizing and promotion:

i.) Strong program of national advertizing is among the most effectiveinducements to secure retail intermediaries

ii.) Advertizing allowances, cooperative campaigns indicate strong channelmember support and serve as good inducements to prospective intermediaries tojoin the channel

+ Management assistance: Can cover a wide range of areas including trainingprograms, financial analysis and planning, market analysis, promotional methodsand others

+ Fair dealing and friendly relationship:

i.) Channel members may like, dislike, respect and disdain each other

ii.) Human people to people element is never fully removed and this factshould not be forgotten

iii.) Emphasis on fair dealing and friendly relationships should not, beexpected to offset failings in the underlying economic or business bases of thechannel relationship

2.2.2 Motivating members for distribution channel of non-life insurance products

Once selected, channel members must be continuously managed andmotivated to do their best The company must sell not only through theintermediaries but to and with them

In managing its channels, a company must convince distributors that theycan succeed better by working together as a part of a cohesive value deliverysystem

In order that channel members can best fulfill their jobs and have a closecooperation, insurance companies need to regularly pay attention to motivatingthem They have to find out the needs and problems of channel members in order tooffer supports to channel members and provide leadership to motivate channelmembers

- Finding out the needs and problems of channel members:

+ Before the channel manager can successfully motivate channel members,

an attempt must be made to learn what the members want from the relationship

+ They may perceive needs and face problems quite differently from those ofthe manufacturer

+ Additional approaches for learning about channel member needs andproblems:

i.) Research studies of channel members conducted by the manufacturerii.) Research studies by outside parties

iii.) Marketing channel audits

iv.) Distributor advisory councils: should consist of top managementrepresentatives from the manufacturer and principals from the market channel

+ The manufacturer may want to gather data from channel members on whattheir needs and problems are in areas such as:

i.) Pricing policies, margins and allowances

ii.) Extent and nature of the product line

iii.) New products and their marketing development through promotion iv.) Servicing policies and procedures such as invoicing, order dating,shipping, warehousing and others

v.) Sales force performance in servicing the accounts

- Offering support to channel members

Support for channel members is often offered on a disorganized and ad hocbasis If such support is properly applied, it should help to create a more highlymotivated group of channel members

In order to best offer supports to channel members, insurance companiesneed to set up thorough plans and specific programs There are many methods tosupport and motivate channel members They can be divided into the three groups

as follows:

+ Group 1: Direct supports: Companies can support channel members inadvertizing, payment, training, inspection, settlement of insurance rights, customercare service, etc

+ Group 2: Cooperation: cooperative arrangements between companies andchannel members will better motivate channel members

+ Group 3: Distribution programming: most comprehensive approach forachieving a highly motivated channel team – “ a comprehensive set of policies forthe promotion of a product through the channel”

i.) First step is an analysis by the manufacturer of marketing objectives andthe kinds and levels of support needed from channel members to achieve objectives

ii.) All policy options can be categorized into three major groups:

a Those offering price concession to channel members

b Those offering financial assistance

c Those offering some kinds of protection for channel members

2.2.3 Evaluating members for distribution channel of non-life insurance products

The company must regularly check channel member performance againststandards such as sales volume, customer delivery time, cooperation in companypromotion and training programs, and services to the customer The companyshould recognize and reward members who are performing well and adding goodvalue for consumers Those who are performing poorly should be assisted or, as alast resort, replaced

Factors affecting scope and frequency of evaluation include:

- Degree of manufacturer’s control over channel members

- Relative importance of channel members

- Nature of the product

- Number of channel members

Channel member audit: a periodic and comprehensive review of channelmember performance Audits may be done for one, several or all the channelmembers at the wholesale and or retail levels The frequency of the audit varies but

is usually not one more frequently than once per year per channel member

- Channel member performance audit consists of three phases:

+ Developing criteria for measuring channel member performance such assales performance of channel members, selling capabilities of channel members,attitudes of channel members and competition faced by channel members

+ Periodically evaluating the channel members performance against criteria + Recommending corrective actions to reduce the number of inadequateperformances

2.3 Factors impacting on managing distribution channels for non-life insurance products

Secondly, the legal environment and policies of state agencies also affectdirectly or indirectly the plan for selecting channel members in insurancecompanies

Competition among players in the insurance sector as well as competitionwith players in other sectors in terms of human resources is the third factor affectingthe managing of distribution channels The competition makes insurance companieshard to select channel members and forces them to find out effective motivationpolicies to attract new channel members as well as sustain current ones

2.3.2 Internal factors

The first factor is the development strategy and the distribution channeldevelopment strategy of the company In the development strategy of the company,

if the distribution channel development is the most important task, all of themeasures to manage distribution channels will receive favorable conditions to beimplemented

Policies of the company relating the management of distribution channel arethe second factor affecting the managing of distribution channel

In order that the selection and motivation of channel members are wellorganized, the ISO system is also a factor ISO system will help the managing ofdistribution channels become more professional and help the company to selecteffective channel members

CHAPTER 3 CURRENT SITUATION OF MANAGING DISTRIBUTION

CHANNEL AT BVI 3.1 Overview on BVI

3.1.1 Brief information

3.1.1.1 BVI’s foundation

BVI was officially established on 1/7/2004 as a part of the VietnamInsurance Corporation (currently known as Bao Viet Group) The history ofdevelopment of BVI links closely with the history and development of the Bao VietGroup

On 15/01/1965, the Vietnam Insurance Company (BVI) was establishedunder Decision No 179 issued on 17/12/1964 by the Prime Minister In 1965-1975,the company is mainly involved in trading marine hull insurance, marine cargoinsurance and acting as a survey agent for socialist countries

In 1980, BVI officially had a sales network nationwide and started to providepassenger accident insurance and vehicle owner’s liability insurance

In 1989, BVI was transformed into the Vietnam Insurance Corporation underthe Ministry of Finance’s Decision Since then, BVI continuously implementedimprovements on management and provided various new products and services,contributing to satisfying the development demand of the economy

In early 1990s, BVI was still the only insurance company in the Vietnamesemarket On 18/12/1993, the State issued Decree No 100/CP on insurance business

in Vietnam which allows other economic sectors and foreign investors to doinsurance businesses in Vietnam, marking an important milestone for thefoundation of the Vietnamese insurance market The establishment of a series ofnew insurance companies strongly boosted the development of the insurancemarket

On 21/6/2004, the Ministry of Finance issued Decision No 1926 on theestablishment of the Vietnam Insurance Company (known as BVI) involved in non-life insurance businesses BVI officially came to operation on 1/7/2004 as amember company of the Vietnam Insurance Corporation (currently known as theBao Viet Group)

After the equitization of the Bao Viet Group on 04/10/2007, BVI wastransformed into a one-member limited liability company from a state-ownedcompany 100% owned by the Bao Viet Group

3.1.1.2 Organizational structure

After the Vietnam Insurance Corporation was transformed into the Bao VietGroup, BVI was transformed into a one-member limited liability company 100%owned by Bao Viet Group with a new oragnizational structure Accordingly, theMember Council and Controller are those who represent the owner – Bao VietGroup to implement the rights and obligations of the owner in line with theEnterprise Law The Board of General Directors is employed by the MemberCouncil to run the BVI

- Board of General Directors: The Board of General Directors includeGeneral Director and 03 Deputies General Directors assisting the General Director

- Funcional Departments: the Head Office has 19 functional departments,namely the Administrative and General Affairs, Financial and Accounting, HumanResources, Accounting, Agent Management, Capital Construction, InformationTechnology, Legal Affairs, Personal Accident Insurance, Motor Vehicle Insurance,Engineering Insurance, Fire and Miscellenous Insurance, Marine Hull Insurance,Marine Cargo Insurance Management, Energy – Aviation Insurance, Reinsurance,Marine Cargo Insurance Business, Non-marine Insurance Business, and Broker andAccounting These departments are involved in management activities at HeadOffice and advise the BoD in research and development of new products,development of distribution channels, etc

Admin &

General Affairs Human Resources

IT

Construction Capital

Marine Hull

Marine Cargo Management

Legal Affairs Agent Training &

Block of underwriting depts.

67 subsidiaries

Energy-Aviation

Block of assisting departments

Figure 3.1: Organizational structure of BVI

Source: Drawn by the author

3.1.1.3 Main business results from 2010-2012

Table 3.1: Some business indicators of BVI in 2010-2012

Source: Association of Vietnamese Insurers (AVI)

From the above table, we can see that such main indicators as turnover andprofit of BVI increase year by year from VND 4,198 billion in 2010 to VND 5,384billion in 2012 and VND 257 billion in 2010 to VND 340 billion in 2012,respectively Yet the growth rate decreases annually from 14.19% in 2010 to10.39% in 2012

There are many reasons behind the above decrease The subjective reason isthat BVI pursues the targetof sustainable development This means that thecompany will not grow at all prices Growth should be followed with profit Thecompany tries to avoid coverage for services with high exposure and high cost Theobjective reason is that the Vietnamese market has witnessed the establishment ofnew competitors who are ready to provide customers with competitive premium andterms and conditions to secure market share

3.1.1.4 Competitive advantages of BVI

(i) Financial ability

BVI has capital of 1500 billion VND, equals to USD 71 million Forbusiness stability, BVI regularly has positive revenue streams from all insurancelines and financial investments The positive financial ability of BVI is anadvantage and makes BVI more reliable both to customers and stakeholders

(ii) Brand

BVI has strong branding recognition within Vietnam and is known as astrong, government-backed institution that can be trusted with financial stability(Grey Consultant Research 2008).

BVI is currently evaluated as the most valuable brand in the non-lifeinsurance market with such criteria as year of services, government as ashareholder, strong capitalized and financial capacity, and foreign investedcompany BVI also has great competitive advantage from sharing Bao Vietbranding

(iii) Human Resource

BVI currently employs around 3,000 staff and is the largest employer in thenon-life insurance market

The employees of BVI have many strong points in comparison with those ofcompetitors The first point is that the management team of BVI, from the HO tobranches have much more skill and expertise than that of local competitors BVI hashigh-educated and the most experience staff, with more than 66% employees havingbachelor degree in 2011 (Annual Headcount Report of BVI, 2011) For that reason,many new entrants have been attempting to attract BVI staff, especiallymanagement team Another strong point is solidarity, high committed andcompliance attitude across the whole system, which ensures efficient and effectivemanagement

Table 3.2: BVI’s Staff Qualification in 2012

Degree Number of employees Ratio

Source: Report of BVI’s HRM Dept 2012

However, in order to transform to a modern business and gain competitiveadvantage in an integrated environment, leadership skills of BVI’s leaders still need

to be improved to approach international standards Management competenceswithin branches still have a gap, so there is a slowdown in communicating andimplementing the direction from head office Moreover, training qualifications ofstaff are inconsistent amongst regions and a great number of staff has not updatedknowledge of new technologies so productivity is hampered.

Heat

h and

Acc

iden

t Cargo

Aviation

Moto

r Vehice

Hull

and

P&I

PublLiabl

BVI Premium by Business line

201 0

Figure 3.2: BVI’s premium by lines of business

Source: Association of Vietnamese Insurers

Motor and PA/Health accounted for the most premium (more than 50% ofthe portfolio) The portfolio mix is similar to the market in that the motor andPA/health are the two top premium class

With strong commercial insurance competency and local knowledge, BVIhas been expanding its product portfolio in personal lines as the growth of wagesand personal consumption in big cities of Vietnam is considerable Another reason

of this direction is that in this business line, BVI has the chance to compete fairly asthis market is not a monopolized one and there is no captive insurer here

3.1.2 Requirements for managing distribution channel for non-life insurance products at BVI

3.1.2.1 Requirements for selecting channel members

The selection of channel members is very expensive and time consuming Italso contributes so much to the success of the company As a result, the selectionmust be implemented carefully to ensure the selection of qualified and efficientmembers who promise to have high turnover and have strong attachment to thecompany The company also set forth requirements for channel members asfollows:

- To have good knowledge of insurance products to be sold like terms and

conditions and premium tariff approved or issued by MOF

- To have good knowledge of BVI

- To have good knowledge of the market and the customers

- To have good knowledge of competitors

- To have good knowledge of their own capabilities, to be confident andknow how to introduce themselves

- To place the rights and interests of customers above their rights andinterests

- To provide honest, clear and exact information to customers

- To keep secret of customers’ information

- To guide customers to declare honest and sufficient information ininsurance proposal

- To strictly follow the regulations on collecting and paying premium

- To serve customers dedicatedly

- To be loyal to BVI, cooperative and friendly with colleagues

- To have good attitudes to other insurance companies: Channel members arenot allowed to speak ill of or have any dispute with other insurance companies andtheir channel members

3.1.2.2 Requirements for motivating channel members

The relationship between channel members and the manufacturer is a way relation The closer the relation is, the better the common goal is reached Tothis end, BVI has required the study of needs and problems of agents so that thecompany can offer effective and timely supports

two-In order to best offer supports to channel members, BVI need to set upthorough plans and specific programs The motivation must be conductedeffectively so that channel members can see and feel supports when they take part

in the distribution channel These supports must be conducted regularly andcontinuously

3.1.2.3 Requirements for evaluating channel members

To manage distribution channel effectively, the evaluation of channelmembers must be conducted periodically and regularly The evaluation must beexact basing on criteria set forth in order to recognize and reward members who areperforming well and adding good value for consumers as well as recognize thosewho are performing poorly to be assisted or replaced

In general, managing distribution channel is very important and must beimplemented carefully to ensure:

- The low rate of channel members leaving the channel,

- The increase in the turnover growth rate, and

- The increase in average turnover per agent

3.2 Analyzing the current situation of managing distribution channel at BVI

3.2.1 Current situation of selecting channel members

3.2.1.1 Recruitment process

Announcement of list of selected candidates & training

Collecting demands, working out recruitment plan

Application screening and short-listing Advertising and receipt of applications

Job introduction

Interview Review

Signing agent contract

Figure 3.3: Agent recruitment process at BVI

Source: BVI’s ISO 2008

The above recruitment process reaches the ISO standards It ensuressufficient information for the entire recruitment process at every step

The recruitment process helps BVI to implement the recruitment effectively The annual and long-term targets relating to the number of channel members will besupervised closely

However, it takes time for BVI to recruit a new channel member, which partly affects the company’s business performance

3.2.1.2 Methods of recruitment

* Setting up criteria to select channel members:

Setting up criteria for a channel member is a fundamental measure for thecompany to select the best candidates, helping to increase the effectiveness of the