Bancassurance in vietnam situation for chartis vietnam applying bancassurance

LISTOF TABLES PagesTable 1: Current non-life insurance companies in Vietnam...20 Table 2: Structureof non-life insurancesectors:...21 Table 3:GrowthRate of Insurance PremiumMarketShare:.

MINISTRYOFEDUCATIONANDTRAININGUNIVE RSITYOFECONOMICSHOCHIMINHCITY

SUPERVISOR

DR TRƯƠNG TẤN THÀNH

HOCHIMINHCITY–2010

MinistryofEducation and

TrainingUniversity of

EconomicsHochiminhCity

Bancassurancein VietnamS i t u a t i o n for

Theresultsofthisstudyareimportanttopolicymakersandregulatorsinparticular,sinceitindicate sthattheyshouldfocust h e i r a t t e n t i o n o n furtherfinancialderegulationtoencouragegrea termarketaccessibilitysinceitisfoundthattargetingthisareahaspotential benefits to the Bancassurancesector.

FortheInsuranceCompany,especiallyChartisCompany,thisthesistrytohelpthemmoreclearly aboutthebenefitsofBancassurancebringupthesuccessfulandprofitablefactorstothecomp any.Ontheotherhands,italsomakesa practicalcontributiontoBancassurance systems in Vietnam.

Forbankmanagers,thisstudyindicatesthattheyshouldseriouslyconsiderexpansionintoBancas suranceoperationsbecauseofthebenefitsprovidedthroughdiversificationofrisk,reductioninco mpanyfixedcosts,increaseinfee-basedrevenues,andimprovementin overall company competitiveness.

IwouldliketosincerelythankDr.TruongTanThanhhavealreadysupervisor,reviewand

commenting all my drafts to improve and complete this thesis.

NguyenXuanThanh

Student: Nguyen Xuan Thanh 2 Supervisor:TruongTan Thanh

TABLE OF CONTENT

CHAPTER 1: INTRODUCTION 1

1.1 Introduction of the study: 1

1.2 Research Problems & Questions: 2

1.2.1 Research Problems: 2

1.2.2 Research Questions: 3

1.3 Scope and objectives of the thesis 4

1.4 Rationale and Significant of the study: 4

CHAPTER 2: LITERATURE REVIEW 6

2.1 Overview about Bancassurance: 6

2.2 Models of Bancassurance 6

2.3 Relation between Bancassurance and Commercial Banking: 8

2.4 Theadvantages& disadvantages of the Bancassurance: 8

2.4.1 Theadvantagesof BancassuranceModels: 9

2.4.2 The disadvantages of Bancassurance Models: 10

2.5 Implementation of Bancassurancesystemin the world: 10

2.6 Studies relating to Bancassurance 14

2.7 Conclusion: 14

CHAPTER 3: METHODOLOGY OF THE STUDY 16

3.1 Introduction 16

3.2 Purpose of this survey: 16

3.3 Research strategy 16

CHAPTER 4: BANCASSURANCE OUTLOOKINVIETNAM 18

4.1 Current situation of Vietnam Non-life Insurance Market: 18

4.1.1 Legal: 18

4.1.2 MarketStructure of non-life insurance 20

4.1.3 Marketsizeofnon-lifeInsuranceMarket 22

4.1.4 VietnamNon-lifeInsuranceMarketBusiness by Direct Insured Premium 26

4.1.5 Product Distribution Systems: 29

4.2 Vietnam Bancassurance Market Business: 30

4.2.1 7 Factors mainly affects Bancassurance market 32

4.2.2 Bancassurance : SWOT Analysis 33

4.2.3 Bancassurance through five Force Porter Model 35

CHAPTER 5: OVERVIEW OF CHARTIS VIETNAM BANCASSURANCE 48

5.1 General Information about AIG Group: 48

5.2 Some Highlight of Chartis General Insurance 50

5.2.1 Commercial Insurance 50

5.2.2 Foreign General Insurance 52

5.3 General Information about Chartis Group: 53

Student: Nguyen Xuan Thanh 3 Supervisor:TruongTan Thanh

5.3.1 A worldwide leader 53

5.3.2 What Chartis provide 53

5.3.3 Chartis’ unique strengths: 53

5.3.4 Brand mark 54

5.3.5 Brand vision and cultural principles 55

5.3.6 Some highlight about Chartis 56

5.3.7 Meaning of Chartis 57

5.3.8 Chartis Vision: Aspiration and Advantage 57

5.4 General Information about Chartis Vietnam 58

5.4.1 Chartis Vietnam Insurance: 58

5.4.2 Highlights of Chartis community efforts in Viet Nam: 59

5.4.3 Current Insurance Products at Chartis Vietnam 60

5.4.4 Position, Market Share and some Financial Results: 63

5.5 Financial Highlight 66

5.5.1 Management performance Analysis: 66

5.5.2 LiquidityRatio Analysis: 67

5.5.3 Profit RatioAnalysis: 68

5.5.4 Growth rate Analysis: 70

5.5.5 Loss RatioAnalysis: 71

5.5.6 Category Mix of Chartis Vietnam from 2008 to 2009 72

5.5.7 A&H Products 75

5.6 Current BancassuranceProducts at Chartis Vietnam: 77

5.6.1 Group Line: 77

5.6.2 Personal Line: 79

5.6.3 Bancassurance – IPA analysis: 80

5.6.4 SWOT analysis 84

5.6.4.1 Strength: 84

5.6.4.2 Weaknesses 87

5.6.4.3 Opportunities 92

5.6.4.4 Threats 93

CHAPTER 6: RECOMMENDATIONS 97

6.1 Recommendations to policymakers and market regulators 97

6.1.1 Completionoftheinsurancelegalframeworkands u p p l e m e n t i n g inadeq uateregulations 97

6.1.2 RevisedtheRegulationinotherto meet the WTO agreement 97

6.1.3 Improvingthelawbuilding,inspectiona n d t h e s u p e r v i s i o n capacityo f s t a t e regulators: 98

6.1.4 Building a system to collect, store, process and share insurance statistics 99

6.1.5 Human resource for insurance industry: 100

6.2 Recommendations to Chartis Vietnam: 100

6.2.1 Developing long term development strategies 101

6.2.2 Differentiate the current Bancassurance product 101

Student: Nguyen Xuan Thanh 4 Supervisor:TruongTan Thanh

6.2.3 Improving managerialskills 102

6.2.4 Improving skills to underwrite complicated risks 103

6.2.5 Databasesforactuarialactivities 103

6.2.6 Information Technology 103

6.2.7 Developinganetworkoftraditionalcustomers 104

APPENDIX 2 107

APPENDIX 3 108

APPENDIX 4 109

APPENDIX 5 110

APPENDIX 6 111

APPENDIX 7 112

LISTOF TABLES Pages

Table 1: Current non-life insurance companies in Vietnam 20

Table 2: Structureof non-life insurancesectors: 21

Table 3:GrowthRate of Insurance PremiumMarketShare: 22

Table 4: Marketshare of non-life DirectPremiumBy Company 23

Table 5: Marketshare of non-life DirectPremiumby Lines 26

Table 6: Chartis PublicationRankings: 60

Table 7: Chartis ProductsClassifications: 62

Table 8: MarketShare of Chartis Vietnam 64

Table 9: Balancesheetof Chartis VNfrom2007 to2009 66

Table 10: Chartis VietnamLiquidityRatio from 2007 to 2009 67

Table 11: Some FinancialRatio of Chartis Vietnamform 2007–2009 68

Table 12: Income StatementChartis Vietnamform 2007–2009 68

Table 13: Some ProfitRatio of Chartis Vietnamfrom 2007 to 2009 69

Table 14: Insurance PremiumIncome of Chartis VN from 2007 to 2009 70

Table 15: Loss Ratio by non-life InsuranceCompany in2009 71

Table 16: Category Mix of Chartis Vietnamfrom 2008 to 2009 72

Table 17: Total A&H Vietnam–Productsby minor lines 75

Table 18: Total A&H Vietnam–Productsby Channel 75

Table 19: Benefits table for platinum DebitCard insured 78

Table 20: PersonalAccidentInsurance–Benefit Summary: 80

Table21: ProfitandLossof IPA BancassuranceBusiness Project 80

Table 22 PersistencyOverviewof IPA Bancassurance Business Project 82

Table 23: IPA BancassuranceMTDPremium Collection 83

Table 23: IPA BancassuranceMTDPremium Collection 84

LIST OF FIGURES Pages

Figure1: Marketshareof foreign non-life DirectPremiumBy Company 25

Figure2: Marketshareof Domesticnon-life DirectPremiumBy Company 25

Figure3: Marketshareof non-life DirectPremiumbyLinesfrom 2007to2009 27

Figure4: Marketshareof non-life DirectPremiumby Lines from in Year 2007 28

Figure5: Marketshareof non-life DirectPremiumby Lines from in Year 2008 28

Figure6: Marketshareof non-life DirectPremiumby Lines from in Year 2009 29

Figure7: Five Force PorterModel of VietnamBancassurance 36

Figure 8: AIG Group Structure 49

Figure 9: Positioningof ChartisVietnam 63

Figure10: MarketShare of Chartis Vietnam 65

Figure11: Chartis VietnamLiquidityRatio from 2007 to 2009 67

Figure 12: ROA&ROE of ChartisVietnamfrom 2007 to 2009 70

Figure13: Insurance Premium Income of Chartis VNfrom 2007 to 2009 71

Figure 14: Loss Ratio by non-life Insurance Company in 2009 72

Figure 15: Category Mix of Chartis Vietnamin Year 2008 74

Figure 16: Category Mix of Chartis Vietnamin Year 2009 74

Figure17: Total A&H Vietnam–Productsby Channel 76

Figure18: Growth Rate of DM Bancassurance Department 84

LIST OFAPPENDICES

Appendix1 :GeneralInformationaboutAIG Group

Appendix2 :Balance sheetof BaoMinh

Insurancefrom2007to2009Appendix3 :Balance sheetof BaoViet

Insurance from 2008 to 2009Appendix4 :Balance

sheetofPVIfrom2007to2009

Appendix5 :Income Statementof Bao Minhfrom

2007-2009Appendix6 :Income Statement of Bao Vietfrom 2008–

2009

Appendix7 :WTO-ScheduleofSpecificCommitmentsinServices-ListofArticleIIMFN

ExemptionsonInsuranceand Insurance-Related Services

1 Associationof VietnamIssuers, Annual New Bulletins2007–2008–2009

2 WTO–MarketOverview–Asia,International, Emerging Market and Asian,Trendsin Insurance Services

5 Introduction to Bancassurance-Muhammad Haidar

6 Bank StateAnnualof Bao VietInsurance inYear 2008–2009

7 Bank StateAnnualof Bao Minh InsuranceinYear 2007–2009

8 Bank StateAnnualof PVIinYear 2007–2008-2009

9 Bank StateAnnualof ChartisinYear2007–2008-2009

10 ABSA GrouplimitedBancassurance Report–Coenraad de Jager and Willie Lategan

11 Bancassurance:ASWOT Analysis-ByManojKumar,Chartered Insurer

CPCU (USA), ARM (USA), ARe (USA), ACII (UK), MBA Executive Manager,DohaBank AssuranceCompany (Qatar)

12 HowtoapplyBancassuranceinVietnam–[Dr.TranHuyHoang]

13 ASwot Analysis of BancassuranceinVietnam–[NgoViTrongandLeHoAnChau

–Bank Institute, HCM Branch]

14 DoesBancassuranceAddValuetoBanks?

EvidencefromMergersandAcquisitionsbetweenE u r o p e a n BanksandInsuranceCompanies[ZhianChen,DonghuiL i , FariborzMoshirian,JianzhongTanSchoolofBanking&Finance

TheUniversityof New SouthWales,NSW2052Sydney]

15 Expansion,consolidationo f Bancassuranceinthe21stcentury,

[Chen,Z.,L i , D , Liao,L.,Moshirian,F.,Szablocs,C.,JournalofInternationalFinancialMarkets,Institutions&Money(2008)]

16 http://www.financial-insight.com

17 http://www.chartisinsurance.com.vn

18 http://www.acbs.com.vn

Ontheworld,Bancassuranceisoneoft h e competitiveDistributionChannelwiththeTraditionaloneforInsuranceCompany:forexample:Dealer,Broker,andCommercialRepresentative.Statically,i n France,70%InsurancePremiumiscollectedthroughtheBan k Channel,68%inPortuguese,63%inSpain.MostoffamousInsuranceCompanyisfocus to expand thatkindofthisservice.

InVietnam,Bancassurancei s reallya

new-borns e r v i c e , o n t h e wayt o expandan d g e t somegoodresults.Firstly,theBankwilldesignsomeproductswhichissuitableforlifeInsurance–ex:“Tietkiemdinhkyvituongl a i –

PeriodicallySaveforyourFuture”ofTechcombank.Beside,thebankwillsignacontractasaAgencyfordistributingInsuranceProductfortheInsuranceCompany–

ex:CooperationbetweenBaoVietandAgribank.AndestablishaJointVenturebetweenCommercialBankandVietnam InsuranceCompanyandForeignInsuranceCompanyisoneoftheotherformsofBancassuranceinVietnam,forex:Vietinsco(joinventurebetweenAsiaInsurancecompanyandVietinBank),orBIC(joinventurebetweenBIDVBankandQBE–AustraliaInsuranceCompany)

FortheBank,Bancassuranceisreallyoneoft h e mosteffectivet o o l s t o diversifyt h e revenue.TheBankcangetcommission,Leveragebank’scustomerbase,branding,andprovidedi n t e g r a t

e d financialproduct.Fort h e InsuranceCompany,Bancassurancei s a

variableDistributionChannelbysharingcustomerdatabasefrom thebank,fostercollaborati

on innewproducttargetsegment

ChartisVietnamwasestablishedinHCMinearly2006.Withawiderangeof personalandcommercialinsurance,rangingfrompersonaltravel,autotopropertyandcasualtyaswellasmultirisksbusinessinsuranceoffering.However,ChartisismainlydeliverytheirproductsthroughDealerandBroker channels, not familiar to the Bancassurance channels

Ina d d i t i o n , t h e InsurancePremiumRevenueoft h e InsuranceCompanyi s u p t o 7 0 % , howeverinVietnamisjusto n l y 5 % So,I havea f o u n d a t i o n t o b e l i e v e t h a t Bancassuranc

e is one of the potential markets for Chartis VN

MarketShare for Chartis Vietnamthough Bancassurance Channel

Accordingto Insurers’ Business Model:

Profit= EarnedPremium+ InvestmentIncome– IncurredCost– UnderwritingExpense

Based on this Model,the Insurance Company has many ways to improve the products:

 How to increase the Earned Premium?

 HowtoimprovetheInvestment Income?

 HowtoDecreasetheIncurred Cost?

 How to DecreasetheUnderwritingexpense?

Thisthesiswillpenetrate onthe1stQ u e s t i o nandthe4thQuestion.

Question 1: How to increase the Earned Premium?

Question 2: How to maximize the effective of the Underwriting Activities?

FortheQuestion1,therearemanywaystoincreasetheEarnedPremiuminInsurancefield for example: Increase the Marketing Activities,Improve sales, Branding…

Question 1:How toimprovingsales?

- Byexpandingthemarketingmix7Psfortheservice:Product,Place,Price,Promotion,People,Physicalsupport,Process

- By Improve Saleschannel:

 DirectChannel

 Indirect Channel (Intermediaries): Insurance Agents, Insurance

Brokers,Commercial Representative

 Integrated Financial Service:Bancassurance

- ByBranding:Increaset h e Imageo f t h e companyo n t h e Marketb y advertising,media

Q1:Which countries have successfullyapplied Bancassurance Model? How?

(Overview about Literature review about experience of othercountriesontheworld)

Q2:TheBancassurancesituationinVietnamMarket?HowsofartheVietnamBankapplies Bancassurance?

(By analysisthestatisticsaboutVietnamInsurance&BancassuranceMarket)

Q3:How about the Bancassurance system runsat Chartis VN so far?

(Bytakea lookatChartisAnnualFinancialStatementandChartisproducts y s t e m t o analysisabout the BancassurancesystematCHARTIScurrently)

Q4:HowtoapplyBancassuranceModeltoChartisVNinanefficiencyandprofitability approach?

(By gettingthe results from thebelow questionnaire to analysisandapplyintoChartisVNtoget the feasible of this model or not?)

1.3 Scope and objectives of the thesis

TheobjectiveofthethesisaimtounderstandtheBancassurancemodelandalsot o identifythebenefitsassociatedwiththismodel.Moreover,thisthesiswilltrytofindoutwhetheritisprofitabilitytoapply thismodelat Chartis VN or not

Scopeoftheplace:thisthesiswillonlyaddressatBancassuranceMarketinVietnam–not

allthemarkets

Scopeoft h e i t e m : t h i s t h es i s onlyaddressatChartisVietnamCompanyforthepass3 years.An

dt h e productst o i n v e s t i g a t e areonlya b o u t t h e I n s u r a n c e Productsu s i n g t o applyfortheBanksproducts

1.4 Rationale andSignificantofthestudy:

Ontheworld,although,mostoftherecentresearcheshavealreadymadeadeepinvestigateontheBancassurancesystemsallovertheworld.AlmostAsiancountriessuchas:Japan,India,Singaporealreadyhasa widerangeofessaysandt h e s i s aboutt h e Bancassurance systemsand how

to enhance this kind of productsinto their markets

Also,inVietnam,therearesomeideas,press,issuesrelatedtotheBancassuranceinVietnam.However,theyarejustonly some simpleandprivate research.

Continuingwiththeraisingideafromprofessorsandpreviousresearch,thisthesistriestomakeclearandfinddownwhatmadethosecountriessuccessfulwithBancassuranceandthethesiswillmakeanoverviewaboutBancassurancemarketinVietnaminordertogivesomesuggestionforChartisVNapplyingtheirproductsm o s t l y a d a p t t o t h e VietnamBancassurancemarket

BancassuranceisaFinancialTrendintheinternationalInsuranceIndustry&CommercialBanking.AmajordevelopmentintheinternationalinsuranceindustryhasbeendisappearanceoftraditionallyclearlineofseparationbetweenBankandInsuranceCompany.Inmuchoftheindustrializedworld,thelate1980sandearly1990shavebeentimesofderegulationoffinancialinstitutionsan

dl i b e r a l i z a t i o n oft h e rulesgoverningm ost oftheiroperations.Insuchanenvironment,BanksandInsuranceCompanieshavebeguntotransformthemselvesintofinancialconglomerateswhichofferthewidestpossiblea r r a y ofservicest o i n d i v i d u a l a n d i n s t i t u t i o n a l

i n v e s t o r s A c o m m o n l y usednameforthiskindofintegratedfinancialactivityisBancassurance,andin oneformoranother,Bancassurancehasap p e a r e d i n m a n y industrializedc

o u n t r i e s a n d es p e c ia l l y i n Europe.In1995,a similarsituationemergedinthe UnitedStates.ThenewRepublicanCongress

companies.Often,banksconductthiskindofinvestingthroughthecreationofaninsurancesubsidiary,andinsurance firms followasimilartactic.

Interpenetrationofmarkets:whichmayhappenbecausethemergerofabankandaninsura

ncecompany.Interpenetrationcanalsooccurifa b a n k o r insurancecompanyacquiresthemajorityof(orasignificantlylargeminorityof)theequitysharesinaformoftheotherindustry

Cooperativearrangement:betweena banka n d aninsurancecompanywherebyeachremainsi

ndependently.Exampleofthis kindsincludedJointventuresandspecial distributionagreementsthatcallforabanktomarket oneinsurancefirm’sproductlineand for insurance firm tosellthe bank’s servicethrough it’s retailsoutlets

 Product based Classifications:

Stand-aloneInsuranceProducts:InthiscaseBancassuranceinvolvesmarketingoftheinsurance pr

oductsthrougheitherreferralarrangement1orcorporateagencywithoutmixingtheinsuranceproductswithanyofthebanks’ownproductsandservices.Insuranceissoldasonemoreiteminthemenuofproductsofferedtothebank’scustomer.However,theproductsofbanksandinsurancewillhavetheirrespectivebrandstoo

BlendofInsurancewithBankProducts:T h i s methodaimsa t blendingo f insuranceproducts

asa ‘valueaddition’whilepromotingthebank’sownproducts.Thus,bankscouldselltheinsuranceproductswithoutanyadditionalefforts.Inmosttimes,givinginsurancecoverata nominalpremiumandfeeorsometimeswithoutexplicitpremiumdoesactasanaddedattractiontosellthebank’sownproducts,e.g.,creditcard,housingloans,educationloans,etc

1 Bank

Referral:thebanksdonotissuethepolicies;theyonlygivethedatabasetotheinsurancecompanies.Thecompaniesissuet h e policiesandp aythecommissiontothem

2.3 Relation between BancassuranceandCommercialBanking:2

Severalimportanta n d globaleconomicforcese x p l a i n t h e phenomenonofBancassurance

3.Extensivederegulationoft h e manyfinanciali n d u s t r y sectorshasallowedthelargefinancialfirmstodiversifytheirproductlines.Deregulationimprovedcompetitionandshranktheprofitmarginsofmanyfinancialinstitutions,drivingthemtoraisetheirmarketshareanddiversifytheirtypesofservices.Withtheincreasedpersonalsavingfromtheeconomicsboomofthe21stcenturi

fundsthanbankhadtraditionallypaid

Thus,moneyflowedfromtheliquidandshort-termaccountsatbanksintootherfinancialinstitutions.AnexampleisFrance,wherethepercentageofindividualwealthinbankaccountsfellfromalmost59%in1960s,to15%in1990s,whilewealthinvestedininsuranceassets raisedform 10% to45%ofhouseholdfinancial assets

Finally,thedemandforinsuranceproductswithinvestmentfeaturesrosedramaticallyinthelastdecade.However,insurancebuyerswerealsolookingforawiderrange offinancial servicesthanthe firmsinthisindustry wereusedtoproviding

Inresponset o thisfactors,Bankandinsurancecompaniessearchforsynergisticc o m b i n a t i o n

s (thatiscombinationsofassetswhicharemorevaluablethanthesumoftheindividualassetsusedindependently)offinancialactivitiesthatcouldcutcost,raisedmarketshare,orboth.Whattheydevelopedwasainsuranceandbankingproducts.OneplacewhereBancassurancehasbeenquitesuccessfulinFrance:in1994,56%ofthelifeinsurance policies were soldthroughbanks

2.4 The advantages&disadvantages of the Bancassurance:

2.4.1 The advantages of Bancassurance Models:

 To the Insurance company

- Lower DistributionCost

- Customerdatabase

- DiversifytheDistributionChannel

- Increasethebusiness profit (high revenue,lowdistribution cost)

- Cooperate with Bank to improve the Brand name

 To the Bank

- Commission

- Customer database (from insurance company)

- Diversifytheproducts

- Increase the profit (due to more products&cross sell)

- Cooperate with Insurance company toimprove Brand name

 To the Customer

- LowPriceof Insurance Products(due tomass production&lowdistributioncost)

- Morechoiceof buyinginsurance

- Obtains manykindofproducts at the sameplace

- Morebenefits: convenient premiumpaid,fastandsimpleclaimprocedures

- Moresafetytobuyviabank(bankhavetoconsidertheprestigeInsurancecompanytorestoretheirBrand name)–double protection

VietnamCommercialBankcandeploytheinsurancedistributionchannelbasedonthenumberofadvantagesasbelow:

- VietnamCommercialBank,especiallyStateOwnedCommercialB a n k havea w i d e rangeofBranches(Level1,level2,level3…)alloverthecountryinordertomeetthedemandofthecustomersa n d assisttocustomerintermofpremiumcollection,claimprocedures…

- Thehighercustomerserviceorienthasbeenincreaseddaybyday,customersrequirebuyingmanykindsofproductatthesameplaceandfinancialinstitutionisnotanexception

- TheBankshavea wideofcustomerdatabasesandgoodwillrelationshipwitht h e customers,whichisoneofthemostadvantagesforthebanktoenhanceBancassurance.

- Mosto f t h e p r o f i t r a t i o o f t h e B a n k viaB a n c a s s u r a n c e o n t h e l e a d i

n g marketi s account for more than50% whileVietnamnowisonly 1.5%

- TheBankandtheinsurerscanhavea chancetoexpandthecross-saleproductsand vice versa

- ThedevelopmentoftheIT,technologiesoftheBankandtheInsuranceCompanycanmeetthedemand when we expandtheBancassurance systems

2.4.2 ThedisadvantagesofBancassurance Models:

However,whenweenhancet h e Bancassurancemarket,wehavetofacewithmanydifficultiesaswell:

- AsmallratioofcustomercanacknowledgethattheycanbuyinsuranceproductataBank.AsstatisticofasurveyinUS_acountryhaveastrongdevelopedBancassurancemarket_announcedthatonly39%oftheintervieweestellthattheycanbuyinsuranceproductsviaBanking Channels

- Int h e 02kindsoft h e Insurance,Bancassurancemostlyexpandt h e productsontheLifeInsuranceproducts,notnon-life,however,lifeinsurancemarketstillaverysmallmarket inVietnamnow

- ThelimitationinInsurancesellingskillofBankingofficerthatwillleadtoanobstacles fordistributing the Bancassurance products

4 Analysis

ofBancassuranceanditsstatusaroundtheworld

MarjorieChevalier,CaroleLaunayandBérangèreMainguy.

Bancassurance has taken deep roots invariouscountries,especiallyinEurope

FranceisoneofthecountrieswherethebreakthroughofBancassurancehasbeenspectacular.Today,FrenchBancassuranceOperatorsaredoingbetterthaninsurancecompanies onindividualrisk

Today,Bancassuranceo p e r a t o r s a r e amongstt h e t o p 1 0 insurancec o m p a n i e s i n Spain,

a n d Bancassuranceaccountsfor74%ofnewcontracts,50%ofwhichgotolocalsavingsbanks

Despiteitssmallsize,PortugalishighlyattractivetoBancassurance.Since1 9 9 5 , t h e insurancesector(lifeorproperty)hasbeenoneofthefastestgrowingmarketsinEurope.Andthere isstillgreatpotential for further development

InItalyBancassurancehasgrownconsiderablyinrecentyears,almostentirelydrivenbyl i f e insurance,and currently70% of newlifepoliciesaresold in bank branches

Belgium:apioneer ofBancassurance

However,it was above all in 1992,followingachangeinthelaw,thatBancassurance

In 1994,thebanking sector distributedjust20%of life insurance In2004, more than63%oflifeinsurancewentthroughthebanksandt e n d t o raiset h e m a r k e t shareofBancassuran

ce from 8% to 20%inthenext few years

InBancassurancemarket,Irelandhasbeenadramaticandunambiguoussuccessoverthepast1 5years.T h e t w o majorb a n k s i n Irelandwhichcontrolo v e r 7 0 % o f t h e banking

LatinAmericaisnowanareawhereBancassuranceisintheprocessofbecomingamajordistributio

n system

InBrazil,bothinsurancecompaniesandbankssometimeshavetheirownbrokers.However,thebankshavebeenactiveintheinsurancemarketsincethe1970s.Thisexperience explainswhytheynowplayadominantroleinthedistributionofinsurancepolicieswithalmostonequarterofpremiumsbeinggeneratedthroughthischannel(Includingmorethanhalf oflife premiums)

InArgentina,biginternationalb a n k s (Citigroup,HSBC,BBVAandBancoSantander)haveacquiredstakesinArgentineanlifeinsurancecompanies,andsalesoflifeinsurancepr od uc ts bythebanksarestartingtogrowsubstantially.However,thetraditionaldistributionchannelscontinuetodominatethemarket

InC h i l e , b a n k s haveb e e n l e g a l l y a l l o w e d t o selll i f e i n s u r a n c e productssince1997.However,anauthorizedintermediarymustbepresentforeveryinsurancesaleinabank

Between1 9 9 9 and2 0 0 3 , Bancassuranceenjoyedanastonishingaverageannualgrowthrate of29%, reaching 10.6% oftotalinsurance premiums (life+property) in 2003.

InMexico,banksplayedanimportantroleintheestablishmentofpensionfundsafterthe1997reform.Sincethen,manyforeign insurancecompanieshavegone intopartnershipwithlocalbanks.In2001,between10and15%oftotallifeandannuitypremiumscamefrombanksales

TheAsianfinancialcrisisof1997becamea d r i v i n g f o r c e i n t h e bankingindustry’sdiversification.Chieflysince2000,BancassurancehasconsequentlybeenattheheartofmanydiscussionsinAsia.FinancialderegulationfacilitatedtheintroductionofBancassurance,notablywitht h

e penetrationofforeigninsurancecompaniesseekingtoestablishagreementswith local banks

ItwasinSingaporethatAsia'sfirstbigexperimentinBancassurancetookplace,followingDevelopmentBankofSingapore’ssaleofitsinsuranceoperationstoAviva.Inreturnforsellingoffitsinsurancearm,DBSbecametheexclusivedistributorofinsurancepolicies

Dependingonthecountry’slegislativeframework,thebankmaysimplyactasadistributorfort h e insurancecompanies.Iti s t h e r e f o r e difficulttodiscerna “typical”Bancassurancepatternmoreopenmarket.Theyremainthedominantchannelforthedistributionofbothlifeandnon-lifeinsuranceproductsinAsia,andtheyareafraidthatthe growth of Bancassurancewillresult in waves of redundancies

Nonetheless,weh a v e observedt h a t t h e commonfactorforalltheAsiancountriesis,withoutanydoubt,anextremelystronginterestinBancassurance,andpenetrationratesforthisdistributionchannelshould increase substantiallyincomingyears

 Markets where Bancassurance is slow to develop

TheAnglo-Saxon,GermanicorScandinavianmarkets,the riseofBancassurancearesofarlessapparent,andtheinsuranceandbrokeragenetworksstilldominate.Gradually,however, the statusof lifeinsurance distributionischanging

Bancassurancehasseentremendousacceptanceandgrowthacrossnations.Althoughiten jo ys apenetrationratei n e x c e s s of50%i n France,Spain,Italya n d Belgium,othercountries havechosenfor moretraditionalnetworks

2.6 Studies relating to Bancassurance:

DoesBancassuranceAddValuetoBanks?EvidencefromMergersandAcquisitionsbetweenEuropeanBanksandInsuranceCompanies

Zhian Chen, Donghui Li, Fariborz Moshirian, Jianzhong

Thisstudyis thefirstcomprehensivestudy ofoverviewlookatBancassuranceinVietnamt h a t isabletofillagapintheexistingliteratureinthisarea,asitovercomessomeoftheshortageofdataforBancassuranceoperationsinVietnamandhencediscussesandmeasuresthedeterminantsofBancassurancebyusingasampleofcompanyfromVietnam“Chartis Vietnam”.

ThispaperreconcilesexistingliteratureonBancassurancewithstudiesintheareaofnon-lifeinsuranceandbanking,andprovidesamorecompletepictureofthemainfactorsthatdeterminetheoverallsuccessandpopularityofBancassuranceoperationsaroundtheworldinbothdevelope

d anddevelopingcountries

Theresultsofthisstudyareimportanttopolicymakersandregulatorsinparticular,sinceitindicatesthattheyshouldfocustheirattentiononfurtherfinancialderegulationtoencouragegreatermarketaccessibilitysinceitisfoundthattargetingthisareahaspotential benefits to theBancassurancesector

FortheInsuranceCompany,especiallyChartisCompany,thisthesistrytohelpthemmoreclearlyaboutthebenefitsofBancassurancebringupthesuccessfulandprofitablefactorstothecompany.Ontheotherhands,italsomakesa practicalcontributiontoBancassurance systemsin Vietnam

Forbankmanagers,thisstudyindicatesthattheyshouldseriouslyconsiderexpansionintoBancassuranceoperationsbecauseofthebenefitsprovidedthroughdiversificationofrisk,reductionincompanyfixedcosts,increasei n fee-basedrevenues,a n d improvementi n overall companycompetitiveness

Aswithanyresearch,itisnecessarytoplananddesignhowtheresearchworkingwillbecompleted.Thischapterobtainsthekeystepsininitiating,planning,designing,a n d conductinganactivityprogramforresearch.Duringthisprocess,thechapteralsofocusesthe methodsofdataa n a l y s i s , SWOTanalysis,PorterModelAnalysis.Fromt h e r e , t h e cha pte r willbelookingataspects,andwhereappropriateforimplementingandfollow-upaction research objectives

3.2 Purpose of this survey:

- EvaluatetheBancassurance development situationof Vietnamingeneral,

- Capture customers’ expectationsandperceptions about Bancassurance product

- Recommenda strategyaboutBancassurancefortopolicymakersandmarketr e g u l a t o r s andChartisCompany toapproachtheVietnaminhabitants

- AnalysisthecurrentstatisticofVietnamInsuranceAssociatetoevaluatethecurrentsituationofVietnamInsurancemarket

- AnalysistheBalanceSheetandIncomestatementofChartisVietnaminYear2007,2008,a n d2009c o m p a r e d withthetop03InsurancecompaniesinVietnam:BaoMinh, BaoViet,andPVI

- UsingDiamondModelofMichaelPorter,analysis04competitivefactorsofVietnamBancassurance:(1)CompetitioninVietnamInsuranceMarket;(2)Demandcondition;

(3) Factors Condition; (4)related,supporting Conditions

- UsingSWOTtoanalysiscurrent BancassurancesituationofVietnamandChartistog i v e outsomerecommendationstopolicymakersandmarketregulatorsandChartisCompanyfor improving thesituation.

Withtheroleasanimportanttoolforstabilizingtheeconomy,people’slivesanddevelopingt heeco no my th ro ug ha ct iv it ies ofriskdiminishingin al lasp ects ofsociety;mobilizingcapitalfordevelopmentinvestment,andasavitalindustry,Vietnaminsuranceis also in renewalprocess, integratesintothecountry’strend

4.1.1 Legal:

Before1993,inVietnaminsuranceMarket,therewasonlyVietnamCorporation(establishedin1964)operatinginnon-

lifeinsuranceindustry,beingmonopolyandsubsidizedbyGovernment.So,t h e roleofi n s u r a n

c e i n societyandeconomywasstillrestricted

InordertorenovateanddevelopinsurancebusinessactivitiestowardtheStategovernedmarketeconomy,inJune1992MinistryofFinanceseparatedmanagementandbusinessf u n c t i o n ofVietnamInsuranceCorporationandestablishedtheInsuranceDivisionunderB a n k i n g andFinanceDepartmenttocounseltheMinistryinmanaginginsurancebusinessactivities

InDecember1993,theGovernmentissuedDecree100/

CPoninsurancebusiness,createdlegalenvironment,attractedforeigninvestment,developedtheinsurancemarket,initiallymetdemandso f i n t e g r a t i o n a n d improvedt h e Statemanagementc

a p a c i t y oni n s u r a n c e business

UnderinfluencesoftheDecree100/

CP,uptotheendof2000,Vietnaminsuranceindustryhasdevelopedwiththepresencesof18insurancecompaniesbelongingtovariouseconomicsectors(theStateowned,JointStock,JointVenture,Fullyforeign

company)andoperatinginallaspects;Directinsurance,Reinsurance,LifeInsuranceandInsuranceBrokerage.Thisdistributionsystemwasinitiallyestablishedwithoneinsuranceb r o k e r andmorethan40,000agents.Besides,thereare40foreigninsuranceCompaniesa n d BrokersopeningtheirRepresentativeOfficesinVietnam.ThetotalpremiumrevenueofwholemarketisVND3,051billion,accountsf o r 0 6 8 % o f GDP,i n whichn o n - l i f e ins ur an ce’ s premium gainsVND 1,766billion,accounts for 0.39% of GDP.

TherapiddevelopmentofinsurancemarketrequirestheimprovementofDecree100/

CPi n t o Law.I n Dec2 0 0 0 , VietnamNationalAssemblyapprovedt h e I n s u r a n c e B u s i n

e s s Law cameintoeffecttoeffect on 1stApril2001

BaseonInsuranceBusinessLawthelegalframeworkfortheoperationoftheinsurancemarkethas been setout and graduallycompleted:

- TheInsuranceBusinessLaw’sguidingdocuments:Decree42and43;Circular71and72followedbyCircular98and99(2004)

- Strategyforinsurance

marketdevelopment2001-2010approvedbythe GovernmentinDecisionNo.175/QD-TTG(2003);Decision153/BTCofMinistryofFinanceissuingt h e system of supervisingindicationsfor insurancecompanies (2004)

- Decree118/CP

oftheGovernmentandGuidingCircular35/BTCofMinistryofFinanceproviding

administrative punishmentininsurance business operation (2004)

- Decision23/BTCofMinistryofFinanceprovidingtermsandtariffsforMotorthirdpartyliability(2004)

- CircularNo.98a n d 99ont h e implementationguidanceo f GovernmentalDecreesNo.42and No.43 (2004)

-

Inter-ministerialCircularofministryofFinancea n d Ministryo f PublicSecurityo n implementationguidanceofGovernmentalDecreeNo.130andNo.115(onFireinsurance and insurance ofcivilliabilitiesofautomobile and motorbike owners)

- CircularNo.111stipulating guidanceonvalueaddedtax(VAT),insurancecompanies’profit(income frominsurancebusiness operation)(2005)

-CircularNo.86(revisedofCircularNo.155andNo.156)ontheimplementationguidanceofGovernmental(2009)

Besidesimprovinglegalframe,InsuranceDepartmentofMinistryofFinancewasestablishedinAug2003inordertoimplementthestate’smanagingandsupervisingfunctionforinsurancebusinessoperation.Before,itisonlyadivisionintheDepartmentof FinanceInstituteandBanking

Itcanbesaidthatafterover20yearspursuingreformandopendoorpolicy,acceleratinginternationalintegration,attractingforeigndirectinvestmentcapitalandmobilizinginternalresources,VietnamInsuranceIndustryhasgainedsignificantachievementsonqualityandquantity,especiallythe2007-2009periodinparticularhavebeenrapidan d s t r o n g development

4.1.2 Market Structure of non-life insurance

Table 1: Current non-life insurance companies in Vietnam

Local Company:16companies

8 AAA 2005 Joint Stock 380billionVND

Foreign Company: 11Companies

Source: Vietnam Association of Insurers

Table 2: Structure of non-life insurance sectors:

Source: Vietnam Association of Insurers

Uptonow, therehave

been27non-life insurancecompaniesjoinedVietnamInsuranceMarket,including16Localcompaniesand11ForeignCompanywiththemarketoccupiedby1 StatedOwnedCompanies,15JoinedS t o c kCompanies,4 j o i n Venturecompaniesand7fullyForeigninvestedcompanies.Thenon-lifeinsurancepremiumhavebeenincreased,withtheideaofestablishmoreInsuranceCompanywithvarietykindof

Atpresent,there’sonly01StatedOwnedCompanies:BIC.Andwiththeabovevarietya n d t h

e a p p e a r a n c e ofFullyForeignInvestedCompaniesmaket h e Vietnamn o n

-l i f e 65branches,theothersVietnamcompanieshave10-

Insurancemarkettogointoacompetition.BaoViet,BaoMinh,PJICOhavearound55-30branches,andForeignInsuranceCompaniesoperatinginHCMandHanoi,DaNang.Upto2008,therearemorethan350Branches,subsidiaryCompaniesofnon-

lifeInsuranceCompaniesdoingbusinessinVietnam.Especially,therearesomesubsidiaryCompanieshavetheturnoverfrom200billionsto450billions–equivalenttothesalesofamedium-sizedinsurancecompanyonthemarket

Fromtheperiod2004-2009withthedoublesizeofnon-lifeinsuranceCompanieshavebeenshowna

potentialnon-lifei n s u r a n ce marketofVietnami n a nearfuturefromt h e period

of2010-2020.Andtheabovedevelopmentmarkethasclearlyreflectedafundamentalshiftfromamarketdominatedbystatedmonopolytoamulti-sectionmarketcoveringallareasofnon-

lifeinsurancebusiness.Thisisa resultoftheGovernment’sOrientationwhichhasbeensetoutintheDevelopmentStrategyforVietnamInsuranceIndustryupto2010;restructuringandstrengtheningfinancialcapacityforState-

Ownedcompanies;developinginsuranceactivitiesandcontinuingtheprocessofopeningmarketin conformitywiththeNational IntegrationProcess

4.1.3 Market size of non-life Insurance Market

Table 3:Growth Rate of Insurance Premium Market Share:

Inthepast03yearsfrom 2007to2009,theinsurancemarkethasgainedhighergrowthrate.Althoughtheratein2009havea lightlydecreased,t h e totalDirectPremiumstillincreasedfrom10thousandbillionVND(2008)to13thousandbillionVND(2009)andt w o timeshigherincomparison with that in 2007 (8 thousand billion)

Thenon-lifeinsurancemarketstillmainlyoccupiedbyVietnamCompanieswiththeratioof94%i n 2007a

n d 92%i n 2009a n d

thenon-lifesectorsofForeignCompanieshavegrammaticallyincreasedthemarketsharefrom487millionVNDin2007comparewith1,1billionVNDin2009, equivalentto6%(2007)–8%(2009)

Non-lifeinsurancehasgreatlybenefitedfromthehighgrowthofe c o n o m i c a c t i v i t i e s , especiallytheincreasecapitalresourcefordevelopmentatanaveragerateof20%-

23%peryear.However,onethingshouldbeemphasizedwhichisthecontinuouseffortsbytheinsurancecompaniesthemselvesinwakeningalleconomicsectors’awarenessofpayingattentiont

o i n s u r a n c e , improvingq u a l i t y o f servicesa n d u p g r a d i n g managementtechnology

Table 4: Market share of non-life Direct Premium By Company

3 BaoNgan 25,599 0% 23,824 0% 66,499 1%

belongedtoForeign Investment Insurers.

InVietnamSectorInsuranceCompany,theMarketwasstillhighlyconcentratedt o bigi n s u r e r suchas:BaoViet(29%),BaoMinh(15%),PVI(22%)andPJCO(10%)inYear2009

InForeignSectorInsuranceCompany,themarketalsodividedmoredispersalwith17%m a r k e tsharefor VIA, 24% for ABIC,15%for Libertyand11%forChartisVietnam

4.1.4 Vietnam Non-life Insurance Market Business by Direct Insured Premium

Table 5: Market share of non-life Direct Premium by Lines

Unit: 1,000,000VND

houra n d workdayeveryw e e k D u e t o thatcircumstance,itwasdifficultforthemtobuydifferentforthemtobuydifferentkindsofinsuranceforenterprisesaswellasforemployee,suchaspropertyinsurance,liabilityinsurance,businessinterruptinsurancea n d insuranceforemployee.Amongtheenterprises w i t h high-

valuedpropertybeinginsuchhardsituationwereshipbuildingyards,companiestradingmarineandinlandwatertransportation,aviation,coalandmineral,o i l a n d g a s , steela n d cement.T o confrontt h e recession,t h e governmentputforwardsomedemandstimulatingpackages,includingsupportinginterestrateat4%/

year,stretchingt h e timet o p a y p e r s o n a l incometaxa n d e n t e r p r i s e i n c o m e t a x T h e solutionabovebroughtaboutgoodeffectasVietnamwasoneoffewcountrygainedthegrowrateo f 3.1%

Thetotalcollectedpremiumofnon-lifei n s u r a n c e i n 2009was13,643BillionVNDincreased63%againsttheperiodof2007.In2008,MotorVehiclesInsuranceaccounted

2,861,873.00 2,024,544

1,546,107 7,590

28,532 649 1,701 1,683 833 314,291 182,861 175,036

1,544,809 1,266,289 809,030

25,303 24,535 19,004

1,164,542 1,029,769 1,022,233

3,182,808 2,550,406

435,192 569,348 321,448 953,095 972,495 712,092

1,960,336 1,597,384 1,203,156 200720082009

fort h e h i g h e s t p o r t i o n o f 2 9 % , followedb y t h e propertya n d CasualtyInsurancewith19

%,PersonalAccidenta n d Healthinsurance(15%),Insuranceofgoodt r a n s p o r t ; Firea n d explosionInsurancerangedaround9%;andotherskindsofLinesisstillaccountedforavery lowshares

Figure 3: Market share of non-life DirectPremiumbyLinesfrom 2007 to 2009

PersonalAccidentandHealthInsurance