The problem
"Tomorrow always arrives, bringing change, and even the strongest company can face challenges if it hasn't prepared for the future." - Peter Drucker, renowned management expert.
Effective business strategies are essential for organizations to enhance their competitiveness and thrive in dynamic markets Companies that implement appropriate strategies are more likely to achieve sustainable growth, while those lacking effective strategies risk failure.
Bao Viet Insurance is a leading insurer in Vietnam, but success requires a clear vision and strategic efforts, particularly in engaging with foreign businesses In a rapidly evolving market, developing the right strategies is crucial This study aims to create and execute effective strategies for Bao Viet's fronting and broking corporate insurance, with the goal of ensuring sustainable development for this service.
Scope of work
This research examines the strategic analysis and formulation of business strategies for Bao Viet, specifically in the areas of fronting and broking corporate insurance It aims to implement these analyses and recommendations to develop effective business strategies for the company in the corporate insurance sector up to 2015.
Objectives and aim
This research aims to evaluate business strategy theories and provide insights into the industry and service sector It will apply the principles of business strategy formulation, selection, and implementation specifically to Bao Viet, with the goal of identifying suitable business strategies for their corporate insurance fronting and broking operations.
In terms of aim, t he suggested appropriate business strategy can help Baoviet remain the sustainable leading insurance company in increasingly complicated and challenging Vietnam insurance market.
Research questions
For getting suggested business strategies for Bao Viet’s fronting and broking corporate insurance, it is vital to answer and make clear of the following research questions:
- What is the way/process to formulate, select and implement the business strategies?
- What is the nature of industry and service area?
- How should Bao Viet do to formulate suitable business strategies for fronting and broking corporate insurance?
- How should Bao Viet do to implement the selected strategies into business and operation reality?
- What are recommendations to the company as well as Government in terms of strategic performance?
Research methods and data sources
This thesis employs a qualitative (descriptive) methodology through a specific case study, which includes a review of the theoretical foundation to understand the process of formulating and selecting appropriate strategies, and subsequently applying them in practice.
This research utilizes both primary and secondary data collection methods The theoretical foundation is established through an extensive review of books, articles, online documents, and various sources Secondary data is gathered from Bao Viet Insurance and its departments, as well as from reports and websites of state administration offices, other insurance companies, brokers, and partners, both locally and internationally Primary data is obtained through interviews with managers, staff, clients, and partners associated with Bao Viet Insurance and other insurance entities.
Three companies, along with insurance brokers and partners, were involved in conducting in-depth interviews with experts and managers from various organizations focused on non-life insurance This research aimed to enhance the assessment, ranking, and comparison of these companies, with detailed findings presented in tables in Chapters 2 and 3, and a comprehensive list of interviewees available in Appendix C.
Significance
This thesis aims to enhance the understanding of business strategy formulation and implementation by exploring key components such as vision and mission statements, analysis of external and internal environments, and the identification of opportunities, threats, strengths, and weaknesses Additionally, it focuses on the selection and execution of effective business strategies to achieve organizational goals.
This thesis aims to provide strategic business analysis and guide the selection and implementation of effective business strategies for Bao Viet, particularly in the areas of fronting and broking corporate insurance Additionally, it serves as a valuable reference for other firms and insurance companies seeking to develop suitable business strategies for their products and services.
Limitations
This thesis focuses on the application of fronting and broking in corporate insurance at Bao Viet Insurance To extend these findings to other products, services, and companies, additional research is essential.
This thesis examines Bao Viet's fronting and broking of corporate insurance from 2011 to 2015, highlighting the need for further research to develop and implement suitable business strategies for different periods.
Expected results
This study evaluates the formulation, selection, and implementation of effective business strategies for Bao Viet, focusing specifically on fronting and broking It successfully identifies and recommends the most suitable strategies to enhance the company's operations and market positioning.
4 corporate insurance Furthermore, the study suggests some appropriate measures for the company to implement the chosen strategies into business and operation reality.
Thesis structure
The thesis includes Introduction part, then the three chapters, and the Conclusion part as following:
Introduction part deals with the research methodology for the thesis to be carried out
C h a p t e r 1 , Theoretical foundation, provides a fundamental review on strategic management theory It focuses on the business strategies formulation, selection and implementation
Chapter 2, Formulation of business strategies, presents the specific process to formulate the suitable business strategies for Bao Viet’s fronting and broking corporate insurance
Chapter 3, Implementation of chosen strategies, suggests recommendations on the business strategies implementation
And, Conclusion part draws some significant points and results of the thesis
THEORETICAL FOUNDATION
Business strategy
The term "strategy" originates from the ancient Greek word "strategos," which combines "stratos," meaning army, and "ago," meaning to lead Essentially, a strategy can be understood as a leadership plan.
The concept of strategy, rooted in military origins, traces back to Sun Tzu's "The Art of War," written around 320 BC This influential work has shaped not only military strategy but also modern business thinking, introducing the idea of "art" in strategic management "The Art of War" serves as a foundational text for strategy formulation, providing a comprehensive framework and methodology that continues to impact strategic management today.
There are a plenty of strategy concepts and views Some of them are commonly accepted and used as follows:
A company's strategy serves as the blueprint for management to effectively position the organization within its target market, ensuring successful competition, customer satisfaction, and strong business performance It encompasses the various competitive tactics and business methodologies that managers utilize in the company's operations.
It can be known that strategy is both proactive (intended) and reactive (adaptive); is partly visible and partly hidden to outside view
Michael Porter defines strategy as the choice to execute activities in a way that distinguishes a company from its rivals In his article "What is Strategy," he emphasizes the concept of "strategic positioning," which aims to attain sustainable competitive advantage by maintaining the unique aspects of a company This involves either engaging in different activities than competitors or executing similar activities in innovative ways.
Business strategy encompasses various levels within an organization, including corporate strategy, business unit strategy, and operational strategy While there are numerous definitions of business strategy, its core principles remain rooted in aligning the overall objectives of the business with the actions of individuals within it.
Business Unit Strategy, as outlined by Johnson and Scholes in "Exploring Corporate Strategy," focuses on how a business can effectively compete within a specific market This involves making strategic decisions regarding product selection, addressing customer needs, gaining a competitive edge, and identifying or creating new opportunities.
Business strategy, as defined by the Oxford English Dictionary, is a comprehensive plan outlining how a firm intends to compete, establish its goals, and implement necessary policies to achieve those objectives This definition emphasizes that business strategy is not just about making strategic decisions but also about creating a sustainable competitive advantage.
7 establishment This is a master plan on how a firm will compete with others, on its goals and policies to achieve the set goals
According to Michael Porter, competition is primarily observed at the business level, where he identifies three generic strategies: cost leadership, differentiation, and focus, which includes both cost focus and differentiation focus These strategies are essential for businesses to establish their competitive advantage in the market.
Source: http://www.marketingteacher.com/lesson-store/lesson-generic-strategies.html ã Cost leadership
Companies often focus on producing similar products at reduced costs compared to their competitors, utilizing more efficient production, management, and distribution methods This allows them to offer lower prices and increase profits However, Michael Porter warns that intense rivalry, particularly when centered on price, can harm profitability, as it shifts profits directly from the industry to consumers.
Instead of low pricing, firms tend to produce the same products at a higher quality and differentiation than their rivals do Thus, they can set different, most of
8 the time higher price than others Differentiation strategy can focus on: attribute, customers service, or images ã Focus
In a fragmented market, understanding focus strategy is essential for businesses of all sizes A focus or niche strategy is particularly beneficial for small-scale companies, but it can also be effectively employed by larger firms that do not pursue broad cost leadership or differentiation strategies By adopting a cost focus, companies aim to become the lowest-cost provider within their specific segment, while differentiation focus allows them to stand out through unique offerings tailored to their niche market.
Michael Porter emphasized the importance of adhering to a single generic strategy for specific products or market segments He argued that by focusing on one effective strategy, companies can leverage their unique advantages and competencies, thereby minimizing waste and optimizing their efforts in niche markets.
Strategic management
Strategic management encompasses the management of strategy through strategic decision-making, guiding organizations toward their long-term goals It involves a systematic process where top management formulates and effectively implements strategies to enhance organizational performance As such, strategic management is an ongoing process rather than a one-time event.
One popular way to understand strategic management is to see the strategy picture from the overall to the details The figure 1.2 below will help
A vision provides a strategic overview of the future direction of a business, outlining where the organization aims to go It emphasizes long-term goals and purposeful actions, serving as a guiding framework for achieving overall success without detailing the specific methods to reach those objectives.
A mission statement serves as a clear and detailed representation of an organization's purpose, making it a more visible expression of its vision It should encompass meaningful and measurable criteria that reflect the organization's moral stance, social image, objectives, and core values Importantly, the intent behind the mission statement should guide all strategic decisions within the organization.
Strategy formulation indicates an organization’s macro-environmental (overall) and micro-environmental (industry) threats and opportunities; identifies internal strengths and weaknesses, ranks these above; basing on ranked and priory
1.3.1 Internal analysis 1.3.2 Sustainable Competitive Advantages Identification Process
1.2.1 Macro Analysis Model: PEST + DN
10 ones to generate alternative strategies; and then decide the best strategies to apply in specific period
The external environment of a firm represents its surrounding atmosphere, comprising various elements in different circles that the firm has minimal or no control over.
The external environment encompasses both the macro and micro environments, where the macro environment represents the broader context in which businesses operate and grow In contrast, the micro environment refers to the specific factors within that larger context that directly influence a company's operations within its industry.
External environment analysis would help firms see their own threats and opportunities in the market
The PEST model is essential for analyzing the macro environment, focusing on Political, Economic, Social, Technological, and Legal factors that influence businesses As economies evolve, the number of factors affecting companies increases In contrast, the Five Competitive Forces model by Michael Porter examines the micro environment, identifying five key elements: Rivalry among existing firms, Potential entrants, Suppliers, Buyers, and Substitutes, with Government sometimes considered an additional factor Understanding these models is crucial for navigating the complexities of today's business landscape.
The external environment is influenced by four major forces, including various macro factors Key elements encompass natural and demographic forces, among others, that significantly impact the overall environment.
- Firms need to consider the state of a trading economy in both short and long terms
When analyzing economic conditions, it is essential to consider various sub-factors such as economic growth, long-term prospects, and comparative advantages of the nation Government intervention plays a critical role alongside factors like income levels, exchange rates, and inflation Additionally, the labor force and associated costs, as well as monetary and fiscal policies, significantly impact the economy Infrastructure quality, interest rates, employment levels, and the degree of openness also contribute to a comprehensive understanding of the economic landscape.
- This kind of arena has a great impact on the overall business
- Firms should consider issues such as: political environment stability, government policy, legal framework, taxation and tariffs, government involvement, intellectual property protection…
- The influence of social/ cultural forces on business varies from country to country, from area to area This is especially true in terms of doing business with global players
- Factors include: living conditions, awareness to safety, social attitude,
12 integration mind-set, culture, social acceptations green issues…
- Technology is essential for competitive advantage, especially in the era of globalization and integration
In today's rapidly evolving landscape, technology plays a crucial role in enhancing quality standards across various industries The rise of innovative communication methods, driven by technological advancements, fosters greater connectivity and collaboration Ongoing research and development efforts are essential for keeping pace with the swift transfer of technology, enabling businesses to adapt and thrive Furthermore, the increasing level of customization and application of technology allows for tailored solutions that meet specific needs, ultimately driving industry growth and efficiency.
Business strategy formulation hinges on aligning a company with its environment, as illustrated by Michael Porter's five competitive forces: rivalry among existing competitors, potential new entrants, pressure from substitute products, and the bargaining power of both buyers and suppliers These forces collectively shape the competitive landscape and determine the industry's profit potential The primary objective of a business strategy is to position the organization effectively within the industry, allowing it to defend against these forces or leverage them to its advantage.
Source: http://www.12manage.com/methods_porter_five_forces.html ü Intensity of rivalry among existing competitors
In various industries, companies operate as "mutually independent," leading to competition that fluctuates over time This rivalry is influenced by factors such as industry maturity, acquisitions, and technological advancements, which can significantly alter the competitive landscape.
To deal with fluctuating rivalry, firms can improve matters through strategic shifts Intense existing rivals depend on the interacting structural industry characteristics such as:
- When there are a few firms in the industry, companies will have relative power Therefore, it is better for them to impose discipline or play a coordinative role like price leadership
- When a plenty of competitors exist in the industry (or there are pretty few companies with relative balance in size and resources), stability will be created
The existing number of rivals
- The problems of foreign versus national rivals: unequal treatment from authorities, culture difference, legal framework, local understanding…
- Slow growth will push expansion because of volatile market share competition
- Fast growth makes firms to improve results or effectiveness
- High fixed cost will push companies to fill capacity, this will, therefore, lead to price cutting
- In fact, it is value added, not the absolute proportion in fixed cost, which affects on fixed cost
- High fixed cost also leads to increasing storage to ensure sale Hence, profits are keeping low
Differ- - When product is considered as commodity, buyers’ options will base
Differentiation among products leads to diverse buyer preferences and brand loyalties, resulting in reduced competition When products have varying levels of differentiation, the cost of switching providers becomes a crucial factor; if switching costs are high, companies are motivated to enhance their cost efficiency or performance to attract and retain customers.
- Capacity additions can disturb the balance of supply and demand
Capacity - Risks of capacity additions can be mentioned such as overcapacity, price cutting, and so on…
- Specialized assets, fixed cost of exit, strategic interrelationships, emotional barriers, and government and social restrictions result in low liquidation values
High exit barriers - High exit barriers can cause companies’ applying extreme tactics to maintain excess capacity This may lead to industry destruction
Exit barriers Low High Low returns but safe Worst Entry Low
Best High returns but risky
- The most usual case is that entry and exit barriers go together This case may show the substantial economies of scale, proprietary technology, and so on ü Threat of entry
Besides rivalry among existing firms, companies also deal with threat of new entrants The elements that influence on threat of new entrants are: barriers to entry,
15 expected retaliation, the entry deterring price, properties of entry barriers, and experience and scale as entry barriers And then we can go to each element in details
Economies of scale reduce unit costs, leading to an increase in the volume of production over time These economies create entry barriers, particularly through vertical integration, which involves managing successive stages of production or distribution.
- Product differentiation forces newcomers to invest on building a brand name, which are risky because of being unrecoverable
- Capital requirements, especially if it is for costly, risky and unrecoverable up-front advertising and R&D
- Access to distribution channels: new firm must convince channels to accept its products through favors, which reduce profits
- Cost disadvantage independent of scale, which can be the following factors: proprietary product technology, favorable access to raw materials, favorable locations, government subsidies, and experience curve
Sources of barriers to entry
- Properties of entry barriers: there are two kinds of properties of entry barriers: entry barriers change beyond company’s control; and entry barriers that are influenced by strategic decisions
- Entry barriers in view of economies of scale:
+ Large scale; and then low costs will lead to tradeoffs with other valued barriers as well as actions of developing proprietary technology
+ Technological change that can create less flexibility in adapting to modern technology
Experience serves as a more intangible barrier to entry compared to economies of scale, as it can be gained by replicating successful strategies, recruiting competitors' employees, and investing in cutting-edge technology and knowledge However, there are limitations to experience, particularly when it comes to acquiring new insights and skills.
16 curve due to new technology; pursuit of low cost… ü Pressure from substitutes:
Substitutes are other products that can perform the similar function as the product in the industry
It is often downstream or indirect, as a substitute product replaces a buyer industry’s one
- It is the matter of collective industry actions with similar arguments
- Threat of substitutes is high if:
+ it improves price-performance tradeoff with industry products + buyer’s switching cost to substitutes is low
+ substitute products are manufactured by industries earning high profits
The threat of substitute products
- Industry profitability can suffer from high threat of substitutes (by placing a ceiling on price) ü Bargaining power of buyers:
- Powerful customers can create competition by forcing to reduce prices, demanding better quality, and playing rivals off against each other
- Customers are powerful when they have negotiation leverage
- The buyer power goes the same rules with wholesalers and retailers It is all about influencing purchasing decisions
- Bargaining power of clients is high in case:
+ Few purchasers or each one who buys a large volume + The purchased products express a significant fraction of their costs or purchases, or standardization, or undifferentiating
+ Few switching costs + Low profits
+ Threat of backward integration + Customers are less price concerning when buyers’ product quality is affected by industry’s product
The threat of substitute products
- Companies can use strategic decision to make segments selection in
17 order to get less powerful clients ü Bargaining power of suppliers:
- Suppliers have power by increasing prices or reducing quality
- What cause high bargaining power of providers is opposite to those creating powerful customers, in details:
+ Suppliers providing to more buyers with less fragmentation
+ Sellers do not need to compete much with their own substitutes
+ The industry is an unimportant buyer of the seller group
+ Products are differentiated or contain switching costs
- Factors influencing on seller power are usually uncontrolled; however, companies can also impact on this to some extent through strategy
To thrive in a competitive landscape, companies must conduct a thorough internal environment analysis, which allows them to assess their strengths and weaknesses across various relevant areas Understanding both the external and internal environments is crucial for firms to develop effective strategies and enhance overall performance.
In order to get internal environment analysis, it is commonly known for us to use the model of value chain ã Value chain
FORMULATION OF BUSINESS STRATEGIES
The concept of service area
2.1.1 Insurance in general 2.1.1.1 The concept of insurance
Life is uncertain We cannot foresee with confidence what the future will be
Human life faces threats from diseases, accidents, and fatalities, while personal property is vulnerable to both natural and man-made hazards The loss of life or disability results in a significant loss of income for households, and property damage can lead to either partial or total financial loss for individuals or businesses.
Risk inherently involves unpredictability, as events such as death, disability, or loss can happen at any time Insurance serves as a safeguard against these potential losses, providing essential protection By utilizing the law of large numbers and the principle of risk spreading, insurance companies, or insurers, take on this risk The law of large numbers posits that the losses experienced by a few can be offset by contributions from a larger group, ensuring that individuals are financially supported in times of need.
Insurance fundamentally involves the concept of "pooling," where individuals contribute money into a collective fund to mitigate financial risks This pooled resource provides assistance in the event of various risks, such as property damage from fire, by covering repair costs and losses By sharing their contributions, members of the community reduce the financial burden of unexpected events, including theft or personal injuries from accidents Essentially, insurance serves as a community service that enables people to collectively manage and share risk, ensuring greater financial security for all involved.
25 premiums by paying a small amount of money, and claims would be covered for those insured with insurance company
To effectively manage claims, it is crucial for pool managers and insurance companies to ensure that their pools maintain sufficient funds to cover potential claims This pool serves as the financial backbone of the insurance company, providing the necessary resources to address any financial obligations that may arise.
According to Irving Pfeffer, insurance serves as a strategy to mitigate uncertainties for the Insured by transferring specific risks to the Insurer, thereby alleviating some of the economic losses that the Insured may experience.
In Vietnam's insurance business law, the term "insurance business" refers to the profit-driven activity of insurers who accept risks from insured individuals This process is contingent upon the payment of insurance premiums by the policyholder, which enables the insurer to provide financial compensation to beneficiaries or indemnify the insured when an insured event occurs.
Non-life insurance, also known as general insurance, encompasses various insurance products such as property insurance and civil liability insurance, excluding life insurance It aims to protect against financial losses resulting from natural disasters like floods, fires, earthquakes, and burglaries—events that are beyond the control of the insured To obtain coverage, policyholders must declare relevant facts in good faith and pay the required premium, without the intention of profiting from the insurance contract This article focuses solely on non-life insurance and does not address general or life insurance.
Reinsurance is a profit-driven activity where an insurer receives a portion of the insurance premium from another insurer to assume responsibility for liabilities already covered by that initial insurance.
* Insurance agency activities means: introducing and offering insurance, arranging the entering into of insurance contracts and other tasks aimed at implementing insurance contracts as authorized by an insurer
Insurance broking involves providing information and consultancy to insurance buyers about various insurance products, conditions, premium levels, and insurers It encompasses tasks related to negotiating, arranging, and implementing insurance contracts at the request of the purchaser.
An insurer is defined as a business entity that is established and operates in compliance with this Law and other applicable regulations, with the primary purpose of engaging in insurance and reinsurance activities.
An insurance premium is the amount of money that the buyer of insurance agrees to pay to the insurer within a specified timeframe and through an agreed-upon method as outlined in the insurance contract.
An insurance premium is not like paying for a typical service or product because:
Insurance companies provide coverage for customers by insuring their property against loss, theft, or damage When a customer experiences such an incident and files a claim, the insurance policy is designed to offer financial protection and support.
- The cost of paying a claim is not certain at the time the insurance policy (coverage) is sold
- Insurance companies do not know what misfortune any of their customers may encounter Therefore, insurance companies may not know exactly how often a customer may make acclaim
- Insurance companies usually offer insurance cover for 12 months at a time and insurance premiums usually need to be paid and renewed every 12 months
* Wordings means: the standard and basic documents for specific types of insurance (For instance: health care insurance has Bao Viet Care wordings, Aon
Property insurance wordings, such as those from ABI and Munich Re, are established by local or global insurers and cannot be modified Any necessary changes to these standard wordings are only permitted through endorsements.
* Renew/ renewal means: to continue; to replace as with a new policy
Reserves refer to the funds set aside for incurred but not reported claims, calculated using a specific formula established by the Ministry of Finance This calculation is derived from retained premiums and involves management judgment.
* Underwriter means: the insurance company; a party assuming risk; the person performing underwriting function
Underwriting is the process by which insurance companies assess and evaluate risk, as not all risks are identical To determine the appropriate premium for individuals or firms seeking insurance for valuable assets, insurers consider various factors that influence the level of risk associated with each customer.
Specific Socio demographic Economic Catastrophic
* Non-life insurance shall include:
- Property insurance and business interruption insurance
- Engineering insurance (contractors’ all risks, erection all risks, machinery breakdown, professional indemnity on architects and engineers…)
- Insurance for goods in transit by road, sea, river, rail and air; marine cargo insurance
- Marine hull and ship-owner’s civil liability insurance (hull and P&I)
- Public and products liability insurance
- Credit and financial risks insurance
- Personal accident and health care and workmen’s compensation insurance
2.1.2 Characteristics of fronting and broking corporate insurance
Fronting and broking corporate insurance deals with global insurers/reinsurers and broking insurance companies
Introduction to Bao Viet Insurance
2.2.1 Introduction to Bao Viet Holdings
BaoViet Insurance Corporation, a subsidiary of BaoViet Holdings, was established on January 15, 1965, and has since become Vietnam's leading Finance-Insurance Group, boasting a nationwide presence across 64 provinces With significant financial strength and expertise in the domestic market, BaoViet uniquely offers both life and non-life insurance services in Vietnam Recognized as one of the top 25 enterprises in the country, BaoViet is a long-standing and trusted insurer for organizations and individuals from diverse social backgrounds.
On May 31, 2007, BaoViet initiated its Initial Public Offering (IPO), marking its transition into a multi-business group By October 15, 2007, BaoViet Holdings successfully registered as a Joint Stock company with key strategic partners, including the State Capital Investment Corporation (SCIC) and Asia-Pacific HSBC Insurance Holdings Limited, leading to the establishment of BaoViet Finance – Insurance Holdings.
BaoViet, a distinguished Special State-owned Enterprise, has received numerous accolades during its development, including the Third-rank Independent Medal from the Party and the State, along with various awards from reputable organizations both domestically and internationally In August 2001, BaoViet was also recognized with the ISO 9001:2000 certification for international quality management by BVQI (UK).
BaoViet has experienced significant growth in premium revenue, with an increase of over 20% over the past five years In 2007, the company's total business revenue amounted to VND7,800 billion, reflecting a 13.5% rise compared to 2006 Additionally, BaoViet's total profit before tax reached VND492.37 billion, while total assets exceeded VND16,500 billion.
In personnel, BaoViet is the sole enterprise in Vietnam having a large-scale network of about 40,000 dedicated agents, attracting more than 5000 employees all over the country
BaoViet operates as a Finance – Insurance Holdings company with a multi-sector focus, where insurance serves as its core business The organization is structured as a parent company, which includes a non-productive unit, specifically BaoViet’s training center, along with several subsidiaries that support its diverse operations.
- BaoViet Life with 61 dependent provincial branch companies;
- BaoViet Insurance with 66 dependent provincial branch companies;
- BaoViet Fund Management Company; ã Affiliates:
- Vietnam International Assurance Joint Stock company;
- BaoViet Resort (going to be established);
- Life Insurance (over 80 product lines)
- Non-life insurance (over 40 products lines)
Under Vietnamese laws and regulations, BaoViet has established partnerships with leading global insurers and reinsurers such as Munich Re, Swiss Re, CCR, Hannover Re, AON, Arthur Gallagher, Marsh, Allianz, Zurich, Chubb, and XL These strategic international relationships enhance BaoViet's capabilities and support its operations in the insurance industry.
32 enhance cooperative ability but also to diversify risks and increase its solvency capacity
Figure 2.1: Structure chart – Bao Viet Holdings
Source: 2009 Bao Viet annual report
2.2.2 Bao Viet Insurance Corporation (Bao Viet Insurance)
In line with the Vietnamese government's development strategy for the insurance market by 2010, BaoViet was established as a multi-business financial group post-2005 On July 1, 2004, BaoViet separated its non-life insurance operations to create the independent BaoViet Insurance Corporation With over 2,800 employees, BaoViet Insurance ensures its staff undergoes comprehensive training on insurance products at its Training Center, alongside advanced courses abroad The leadership team is highly experienced and well-versed in the insurance sector.
With 66 member companies, 410 offices in all provinces throughout the country, BaoViet Insurance is always ready to provide services and assistance for customers This widespread network has created BaoViet Insurance’s strength in mutual support as well as inspection of loss site quickly and timely Concurrently, BaoViet Insurance’s relationship with local authorities in the whole country during the pass 45 years is also an advantage that other companies could not have
As of December 31, 2009, BaoViet Insurance reported total assets of VND 4,636.30 billion and reserves of VND 2,656 billion, significantly surpassing the minimum legal capital required for non-life insurance companies in Vietnam by 15.5 times This substantial capital positions BaoViet Insurance as the leader in financial strength among non-life insurance providers in the country.
To strengthen the management and risk control, BaoViet Insurance were approved to raise the charter capital of VND1,000 billion to VND1,500 billion On
11 June 2010, the Ministry of Finance has issued the adjusted license No.45/GPDDC3/KDBH allowing BaoViet Insurance increased its chartered capital to VND1,500 billion
BaoViet Insurance has earned customer confidence through its financial strength, expertise in meeting insurance needs, and extensive experience in claims settlements Over 45 years, the company has developed valuable insights in designing insurance programs for large enterprises Continuous improvement in risk assessment, management, and loss minimization, along with a focus on reserves, underscores BaoViet's commitment to enhancing customer service quality.
In addition, BaoViet Insurance has established and maintained close business relationships with many major re-insurance companies in the world such as Munich
BaoViet Insurance leverages the expertise of renowned global reinsurers like Swiss Re, Allianz, and Zurich to enhance its claims settlement capabilities for large-scale projects worldwide This collaboration has equipped BaoViet Insurance with valuable experience in loss prevention and risk mitigation across various industries With robust financial strength and strong partnerships with international brokers such as AON and Marsh, BaoViet Insurance is well-positioned to provide coverage for substantial projects and assets Additionally, its efforts to expand into markets like Laos and Cambodia have further solidified customer trust and elevated its reputation in the insurance sector.
BaoViet Insurance’s motto throughout performance and development is:
Figure 2.2: Structure chart - Bao Viet Insurance Corporation
Vision and Mission statement
Bao Viet aims to establish itself as Vietnam's premier insurance company, earning recognition from customers, competitors, and employees as the market leader in insurance services and products.
Bao Viet's mission statement centers on its commitment to customers, aiming to achieve sustained profit growth by providing the best customer experience at the lowest possible cost This focus is reflected in the company's core attributes.
+ All insurance processes and customer service architectures designed to drive or enable profitable sales through excellence in customer services
+ Economies of scale with process and systems standardization that will facilitate improved management control and compliance
+ Minimize infrastructure duplication to reduce costs
+ Implementation of best practices and reengineering to drive continuous improvement and service excellence
+ Creation of best in class work environment and strong people development culture in order to attract, develop and retain the best team and individuals
+ Ability to provide a 24/7 service proposition to customers
Strategy formulation
2.4.1 External analysis 2.4.1.1 Economic factors ã Forecasting demand
The five-year forecast for Vietnam's corporate insurance demand in fronting and broking is based on current and recent market data, assuming no external influences affect this trend.
Table 2.1: 5-year base-line forecasting
1) Demand – growth rate 25% (VND1mil.) 140.63 175.79 219.73 274.67 343.33
Figure 2.3: Baseline forecasting for 5 years
The baseline forecast does not take into account various macro and micro environmental factors Opportunities arise from any elements that lead to an increase in demand, while threats are identified from factors that cause a decrease in demand Economic growth plays a crucial role in shaping these dynamics.
Vietnam is one of strongest performing economy recent years with relatively high growth rate
The table 2.2 shows the figures of GDP growth trend and other indicators from 2008 to 2014
Compared with the GDP growth rate of Asia and the world, Vietnam’s GDP growth rate is still high (see more at Table 2.4 below)
A high GDP growth rate typically indicates a favorable trend in income and investment, leading to increased demand for insurance, particularly in fronting and broking corporate insurance This scenario presents a significant opportunity for foreign investment in the insurance sector.
The rise in foreign investment drives greater demand for corporate insurance, particularly professional insurance, as a significant portion of these contracts are issued to foreign enterprises, presenting a valuable opportunity in the market.
Table 2.4: Foreign direct investment projects licensed in period 2000 - 2009
Total registered capital (Mill USD)
Total activated capital (Mill USD)
Source: Ministry of Trade – www.mot.gov.vn
The rise in foreign investment significantly benefits the non-life insurance sector, particularly in the areas of fronting and broking corporate insurance As more foreign enterprises establish operations in Vietnam, their demand for non-life insurance to safeguard against unforeseen risks increases Although foreign investment experienced a slowdown due to the recession, there has been a steady rise in registered additional capital The primary sources of foreign investment in Vietnam include the USA, South Korea, Hong Kong, and Singapore, driven by ongoing urbanization and industrialization.
Economic development, urbanization, and industrialization are driving significant growth, with the UN predicting that the urban population will exceed 50% by the early 2040s This surge in urbanization is leading to increased demand for public and national infrastructure projects, such as highways, thermal and hydro power plants, and bridges, as well as civil constructions like complexes, apartment buildings, commercial centers, villas, resorts, and office buildings This presents a substantial opportunity for growth in various sectors.
The fluctuation of exchange rates significantly impacts non-life insurance, particularly in fronting and broking corporate insurance, as many contracts are denominated in foreign currencies like USD, EUR, and GBP Insurance companies in Vietnam face heightened risks due to the ongoing devaluation of the Vietnamese Dong (VND) against the US Dollar, which has led to a substantial year-on-year decline in the VND: USD exchange rate Additionally, concerns persist regarding the potential overvaluation of the VND.
In addition, firms and households hoard US Dollar in expectation of further downward adjustments
Devaluation poses significant risks for both governments and companies engaged in extensive foreign transactions, particularly those involving the US Dollar This challenge arises as customers incur premiums in foreign currencies, paid in VND at lower bank exchange rates Conversely, when settling payments with global insurers, companies must convert funds at higher exchange rates than those officially quoted, exacerbating the financial strain.
Figure 2.4: Exchange rate VND/USD
Source: http://www.exchange-rates.org/history/VND/USD/G and interbank USD/VND, both have been devaluated
Source: http://www.f319.com/home/1228062/page-12
1 GDP growth rate Exchange rate
The Vietnam business insurance law, effective from April 1, 2001, aims to enhance the safety and stability of the domestic insurance market, bolster the financial strength of insurance companies, and safeguard the interests of policyholders However, the law faces significant challenges as it struggles to keep pace with the evolving insurance market in Vietnam, leading to issues such as unregulated brokers, excessive price discounting, and inappropriate fines and sanctions These obstacles hinder the growth and development of insurers, posing a substantial threat to the industry.
The introduction of detailed legal regulations on fire and explosion insurance, particularly the compulsory nature of this coverage under Decision 28’s occupation codes, has significantly increased market demand As of July 1, 2007, the Vietnam Authority eliminated the requirement for Compulsory Reinsurance, providing a competitive edge to Bao Viet, which boasts a robust network of both global and local reinsurers and strong reinsurance capacity This unique position allows Bao Viet to stand out in the market, presenting a significant opportunity that other insurance players have yet to match.
Legal documents often outline administrative fines in construction, emphasizing the necessity for contractors and principals to secure an insurance contract alongside their construction agreements This requirement not only increases demand for insurance services but also presents a valuable opportunity within the industry.
However, there still exist unstable changes in legal framework on insurance, investment, constructions, competition, bidding and other relevant aspects It is, absolutely, a threat
1 Compulsory regulations on insurance Laws not support insurance development
2 Laws in construction and others
As the economy becomes more open, the presence of foreign participants has grown, leading to a heightened understanding of the importance of corporate insurance Consequently, a significant portion of corporate insurance contracts is now sourced from foreign companies, reflecting their increased awareness and perception of insurance needs.
Joint stock Companies having capital of State 1597 1812 Joint stock Companies without capital of State 20862 31744
Source: Ministry of Trade – www.mot.gov.vn
Limited awareness among domestic enterprises regarding insurance poses a significant threat to the development of the insurance sector Many businesses lack a clear understanding of the fundamental aspects of insurance and the specific benefits they can gain from it, hindering their ability to effectively engage with corporate insurance offerings.
In addition, the emerging attitude to fidelity risks in many kinds of organizations (business enterprises, financial institutions, hospitals, securities…), this somewhat makes threat to insurance
1 Clear insurance awareness of foreign enterprises
Limited insurance awareness of the local
There is a lack of technological application and outdated IT system on management and business As a result, this issue somewhat creates obstacles for
The development of insurance in Vietnam faces significant challenges, particularly due to the high costs associated with investing in IT programs for effective insurance management As the insurance sector is still emerging in the country, these financial burdens are perceived as a substantial threat to its growth.
The insurance system in Vietnam is currently unprofessional, making it challenging to customize standardized IT systems for the local market This difficulty in customization poses a significant threat to the industry's development.
Some IT applications are used among Vietnam non-life insurance industry: