distribution channels management at bao viet insurance corporation

ACKNOWLEDGEMENT First of all, I would like to express my sincere thanks to PhD Pham Khac Dung who enthusiastically guided and supervised the duration of my thesis writing. The thesis was completed owing to his valuable instructions, correction and comments. Secondly, I would like to express my great thanks to all of the lecturers for their 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 family for giving me encouragement and supports during my studying time and completion of this thesis. Hanoi, October 2013 TRUONG DUC ANH TABLE OF CONTENTS 22 1 ABBREVIATION AVI………… Association of Vietnamese Insurers BAO MINH….Bao Minh Insurance Corporation bln………… billion BOD…………Board of Directors BVI ………….Bao Viet Insurance Corporation MOF…………Ministry of Finance mln………… million PA………… Personal Accidents PJICO……… Petrolimex Insurance Corporation PVI………… PetroVietnam Insurance Joint Stock Corporation SMEs……… Small and Medium Enterprises 1 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 key management issue for any company to enhance its competitiveness as distribution channel is considered as the bridge between producer/supplier and final user or customer. However, the management of the distribution channels at BVI is still ineffective while the competition in the non-life insurance market in Vietnam increasingly become fierce following the international integration. Having recognized of this, the objectives of this research are formulated as follows: - To clarify the requirements for managing the distribution channels for non- life insurane products. - To analyze the management of the distribution channels for non-life insurance products at BVI - To suggest recommendations for BVI to improve the management of distribution channels for non-life insurance products. Basing on the theories on managing distribution channels together with primary data and secondary data, the author has analyzed current situation of managing distribution channels at BVI including selecting channel members, motivating channel members and evaluating channel members to find out shortcomings of managing distribution channels at BVI and causes of these shortcomings. The findings are as follows: - The selection of agents is still ineffective. Many agents, after being selected and 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 namely motor vehicle insurance (59.77%) and personal accident insurance (20.83%) while turnover 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 sell insurance products and loosened the creation of sales channels for agents. 55 - The evaluation of member channels is mainly based on turnover indicator while ignoring the effectiveness and profit. Basing on the development orientation of BVI for managing distribution channel, the author has proposed recommendations for BVI to improve the managing 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 selling capabilities, their attitudes and competition they faced and underwriting effectiveness in order to have recommendations for corrective actions to reduce the number of inadequate performances. The author hopes that these recommendations will help BVI to sustain its first largest position in the non-life insurance market and increase profits as well. 66 CHAPTER 1 INTRODUCTION 1.1. Rationale Non-life insurance companies in Vietnam have been marketed various insurance covers either directly or through different distribution channels including individual agents, corporate agents and brokers. The insurance marketplace is undergoing a transformation that may eventually lead to significant changes in how consumers purchase insurance products. Besides, globalization has made competition in the non-life insurance market become fierce with the establishment of foreign companies which have excellent insurance knowledge, good selling and underwriting experiences as well as modern information technology. This requires local companies to have proper management and organization of distribution channels. Established in 1965, Bao Viet Insurance Corporation (BVI) is the oldest and the first largest non-life insurance company in the Vietnamese market. From its establishment, the company has developed the biggest sales network of 67 member companies in 64 provinces across the country. The company provides main lines of businesses like personal accidents & healthcare, marine hull and cargo, motor vehicle, and fire and engineering insurance. At present, the company is marketing its insurance products through the direct and indirect distribution channels. Each distribution channel has its own advantages and disadvantages during the distribution process. The direct channel is suitable with traditional customers and corporate customers while the indirect channels are effective with individual and small business household customers Yet like other players in the market, managing distribution channels at BVI is still poor and receives unsufficient investment. Turnover growth rate through these channels has been declined in recent years and the number of agents has witnessed changes. BVI’s leadership has recognized the importance of managing more effectively 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 77 channels in the company and 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-life insurance products. - Analyze the managing of the distribution channels for non-life insurance products at BVI - Suggest recommendations for BVI to improve the managing of distribution channels 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 distribution channels? - What are the requirements for managing the distribution channels for non-life insurance products at BVI? - What BVI can do to improve the managing of their distribution channels? 1.4. Research Methodology 1.4.1. Research Process: Collecting secondary data: books, magazines, market reports Requirements for managing distribution channel for non-life insurance products at BVI Recommendations to improve the managing of distribution channel for non-life insurance products at BVI Collecting secondary data about BVI: company’s reports, strategies, website, etc. 88 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’s reports, 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 and competitors 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’s turnover, growth rate, market share, requirements for managing distribution channels for non- life insurance products, etc. 1.4.3. Primary data collection Colleting primary data is very essential because it reflects fully the needed information 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 current Current situation of managing distribution channels of non-life insurance products at BVI - In-depth interviews with managers - Questionnaires 99 situation of BVI’s agent management including achievements and shortcomings in managing this channel and reasons for the shortcomings. (ii) Survey: - Purpose: the survey is conducted to get the agents’ evaluation of the motivation and supports from BVI. - Respondents: current agents of BVI - Sample size: 400 agents. - Sampling method: The author used the systematic sampling. Firstly, the author 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 the author 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. Yet only 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 to analyze 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 the current 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 the distributions channels at BVI that includes selecting channel members, motivating channel members and evaluating channel members. Because of limited time, the author focused on agent distribution channel only. - Geographical scope: The survey will be conducted in Hanoi. 1010 [...]... equitization of the Bao Viet Group on 04/10/2007, BVI was transformed into a one-member limited liability company from a state-owned company 100% owned by the Bao Viet Group 3.1.1.2 Organizational structure After the Vietnam Insurance Corporation was transformed into the Bao Viet Group, BVI was transformed into a one-member limited liability company 100% owned by Bao Viet Group with a new oragnizational... 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 Vietnam Insurance Corporation (currently known as Bao Viet Group) The history of development of BVI links closely with the history and development of the Bao Viet Group On 15/01/1965, the Vietnam Insurance Company... Administrative and General Affairs, Financial and Accounting, Human Resources, Accounting, Agent Management, Capital Construction, Information Technology, 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. .. channel at BVI • Chapter 4: Solutions to improve the managing of distribution channel at BVI • • 12 12 CHAPTER 2 THEORETICAL BACKGROUND ON MANAGING DISTRIBUTION CHANNELS FOR NONLIFE 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 implement the same business objective or... of new insurance companies strongly boosted the development of the insurance market On 21/6/2004, the Ministry of Finance issued Decision No 1926 on the establishment of the Vietnam Insurance Company (known as BVI) involved in non- 25 25 life insurance businesses BVI officially came to operation on 1/7/2004 as a member company of the Vietnam Insurance Corporation (currently known as the Bao Viet Group)... contributing to satisfying the development demand of the economy In early 1990s, BVI was still the only insurance company in the Vietnamese market 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 do insurance businesses in Vietnam, marking an important milestone for the foundation of the Vietnamese insurance market... measures to manage distribution channels will receive favorable conditions to be implemented Policies of the company relating the management of distribution channel are the second factor affecting the managing of distribution channel In order that the selection and motivation of channel members are well organized, the ISO system is also a factor ISO system will help the managing of distribution channels become... insurance, marine cargo insurance and acting as a survey agent for socialist countries In 1980, BVI officially had a sales network nationwide and started to provide passenger accident insurance and vehicle owner’s liability insurance In 1989, BVI was transformed into the Vietnam Insurance Corporation under the Ministry of Finance’s Decision Since then, BVI continuously implemented improvements on management. .. depending upon: occupation, insured locations, security, management The insurable objects are also diversified, such as, travel insurance, property insurance, director & officer insurance, … - Perishability Insurance services cannot be stored as physical products Thus, the insurance company’s marketing activities should be oriented to the speed of the service provision in accordance with insurance buyer’s... honest, clear and exact information to customers - To keep secret of customers’ information - To guide customers to declare honest and sufficient information in insurance 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 . CONTENTS 22 1 ABBREVIATION AVI………… Association of Vietnamese Insurers BAO MINH… .Bao Minh Insurance Corporation bln………… billion BOD…………Board of Directors BVI ………… .Bao Viet Insurance Corporation MOF…………Ministry. Distribution Channels Management at Bao Viet Insurance Corporation to find out achievements and shortcomings of managing distribution 77 channels in the company and to suggest recommendations. modern information technology. This requires local companies to have proper management and organization of distribution channels. Established in 1965, Bao Viet Insurance Corporation (BVI) is