Improving competitiveness of Petrolimex Joint-Stock Insurance Company = Nâng cao năng lực cạnh tranh công ty Cổ phần Bảo Hiểm Petrolimex

Significance and expected results By scanning the specific theory on competitiveness and analyzing the impacts of business environment of non-life insurance market, the study helps PJIC

vietnam national university, HANOI

school of business

Do Thi Mai

IMPROVING COMPETITIVENESS of PETROLIMEX JOINT- STOCK INSURANCE COMPANY

Major: Business Administration

Code: 60 34 05

Master of business administration thesis

Supervisor: Dr Tran Phuong Lan

Hanoi - 2011

TABLE OF CONTENT

ACKNOWLEDGMENTS i

ABSTRACT ii

TÓM TẮT iv

TABLE OF CONTENT vi

LIST OF TABLES vii

LIST OF FIGURES ix

LIST OF ABRREVIATION x

INTRODUCTION 1

1 The problem 1

2 Objectives 1

3 Research Questions 1

4 Scope of work 2

5 Methodology and data sources 2

6 Significance and expected results 2

7 Limitations 3

8 Thesis Structure 3

CHAPTER 1: THEORETICAL FOUNDATIONS 4

1.1 Definition of competitiveness 4

1.2 Sources of competitiveness 5

1.3 Models to assess and analyze industrial competitive environment 6

1.4 Models to analyze firm competitiveness 14

CHAPTER 2: RESEARCH AND ANALYSIS APPLICATION OF MODELS TO ANALYZE PJICO’s COMPETITIVENESS 16

2.1 Overview of non-life insurance industry in general and in Vietnam 16

2.1.1 Non-life insurance industry in recent years 16

2.1.2 Non-life insurance industry in Vietnam 20

2.1.3 Key success factors in non-life insurance industry 25

2.1.4 Factors affecting non-life insurance enterprise’s competitiveness 27

2.2 Overview of PJICO 29

2.2.1 Introduction of PJICO 29

2.2.2 PJICO’s business activities 33

Unit: VND billion 35

2.3 Application of models to analyze PJICO’s competitiveness 39

2.3.1 Application of PEST & Five Forces models to analyze factors affecting PJICO’s competitiveness 39

2.3.2 Application of Value Chain model to analyze and evaluate PJICO’s competitiveness 51

2.3.3 PJICO’s competitive position in comparison with its main competitors 76 CHAPTER 3: CONCLUSIONS AND RECOMMENDATIONS 80

3.1 Conclusion of PJICO’s Competitiveness 80

3.1.1 Summary from internal analysis and competitiveness comparison 80

3.1.2 Assess to the real PJICO’s strengths & weaknesses – the core compentencies 85

3.2 Solutions for PJICO to strengthen its competitiveness & to achieve its objectives 89

3.2.1 PJICO’s strategic vision and objectives 89

3.2.2 Solutions for improving PJICO’s competitiveness until 2017 90

3.3 Recommendations 106

3.3.1 Recommendations to Government 106

3.3.2 Recommendations to Association of Vietnamese Insurers 107

3.3.3 Recommendations to PJICO 108

REFERENCES 109

APPENDICES 111

LIST OF TABLES Table 1.1: Selected connotations of firm level competitiveness: 5

Table 1.2: The five forces that shape industry competition of Michael Porter 9

Table 2.1: Real growth rate of Industrialized and Emerging markets (1980 – 2009) 17

Table2.2: Real growth rate of insurance market of developing countries (1980 - 2010) 18

Table 2.3: Asia Pacific Non-life markets at a glance, 2008 - 2010 19

Table2.4: Vietnam’s top 10 non-life insurance market share 2005-2010 21

Table2.5: Non-life insurance premium income and premium growth 2004-2010 21

Table2.6: Premium and Loss by class in 2010 23

Table 2.7: Gross Premium Income by Type of Insurance 2007-2010 38

Table 2.8: Vietnam’s non-life insurance market shares 2005- 2010 47

Table 2.9: Conclusion of Environment analysis – Chances and Challenges 51

Table 2.10: Labor Force of PJICO 2006-2010 69

Table 2.11: Statistics of Training Courses 2007-2010 70

Table 2.12: Some financial criteria of PJICO 2007-2010 73

Table 2.13: Competitiveness Comparison 77

Table 3.1: Identification of Sustainable Competitive Advantages - Strengths 85

Table 3.2: Identification of Sustainable Competitive Advantages – Weaknesses 86

Table 3.3: The real PJICO’s strengths and weaknesses – Core competencies 88

Table 3.4: Possible solutions and actions 91

LIST OF FIGURES

Figure 1.1: Value chain 14

Figure 2.1: Market premium and loss 2006-2010 22

Figure 2.2: Non-life insurance premiums by business lines 23

Figure 2.3: Market share of Non-life Insruance Companies 2010 31

Figure 2.4: Insurance Premium Income 2005-2010 35

Figure 2.5: PJICO’s Product Portfolio in 2010 36

Figure 2.6: Vietnam’s GDP 42

Figure 2.7: Vietnam’s savings and current account balance (in % of GDP) 43

Figure 2.8: Vietnam’s inflation and exchange rate 43

Figure 2.9: Some Vietnam’s economic figures 44

Figure 2.10: Value chain of PJICO ……… 52

Figure 2.11: Process of new product design 53

Figure 2.12: Underwriting process 59

Figure 2.13: PJICO’s process of reinsurance 62

Figure 2.14: Survey process for non-life insurance products of PJICO 64

Figure 2.15: Claims handling process for non-life insurance products of PJICO 65

LIST OF ABRREVIATION

PJICO Petrolimex joint-stock insurance company SWOT Strengths, Weaknesses, Opportunities, Threat PEST Political, Economic, Social, Technological

R & D Research & Development

SCIC State Capital Investment Corporation

CEO Chief Executive Officer

GDP Gross Domestic Price

IT Informatics Technology

INTRODUCTION

1 The problem

Vietnamese non-life insurance market has been experiencing a challenging, struggling as well as fast-developing stage Going along with this context, each and every participant in this market needs to focus more on their real competitiveness to achieve further growth and sustainability; and PJICO is one of these players

Moreover, until now, there has not been a complete and thorough analysis on PJICO’s competitiveness and the ways to improve the real competitiveness Therefore, the thesis is born to conduct analyses on PJICO’s competitiveness and suggest possible solutions to strengthen its competitiveness in order to stand and develop in Vietnamese non-life insurance market in the future

2 Objectives

The objectives of this study can be listed as follows:

 Give the overview on concept of competitiveness

 Provide some analyses on macro and industry environment of insurance market

 Conduct a thorough study on PJICO’s competitiveness

 Recommend the possible ways to improve the current competitiveness so

as to help PJICO be stable and progressive in the insurance market

3 Research Questions

Based on the problem and objectives listed above, some research questions are given and discussed:

a What is competitiveness?

b Method and process to analyze competitiveness of a firm?

c The way to conduct macro and industry environment analysis of insurance market?

d The way to conduct internal environment analysis of an insurance company?

e What are suggestive solutions to improve the competitiveness of PJICO

5 Methodology and data sources

This study uses the descriptive method for analysis through a specific case study of PJICO in the context of present Vietnam insurance market

The data are sourced through two ways:

a Secondary data are collected from research of books, websites, teaching notes, reports, magazines and newspaper, and other available documents

b The primary data are collected chiefly through deep interviews with PJICO’s as well as partners’, other players’ managers, key staffs, and their customers The details of primary data are shown in analyses in Chapter 2 and Chapter 3; the list of interviewees and the list of questionnaires are shown in the Appendix 1 and 2

6 Significance and expected results

By scanning the specific theory on competitiveness and analyzing the impacts of business environment of non-life insurance market, the study helps PJICO in giving suggestive solutions to improve its competitiveness to the year 2017

Therefore, this methodology, information and analysis can be applied for other companies or other insurance companies or for the PJICO itself in other stages of development

7 Limitations

This thesis is conducted in narrowed scope of insurance market and the applications

to PJICO in certain period to the near future until 2017 Thus, it may not wholly express and reflect the business environment as the whole and in other periods

8 Thesis Structure

The study includes four parts as below:

a Introduction

b Chapter 1: Literature review and overview of non-life insurance market

c Chapter 2: Research and applications of models to analyze PJICO’s competitiveness

d Chapter 3: Conclusions and recommendations

CHAPTER 1: THEORETICAL FOUNDATIONS

Day by day, firms have been facing increasing numbers of challenges, changes and competitors Indeed, being successful is requiring new perspective and practice on competitiveness

1.1 Definition of competitiveness

In spite of its significance, the concept and definition of competitiveness is widely controversial Up till now, there has been no generally accepted definition of competitiveness as well as no mutually accepted definition to explain it In the simplest terms, competitiveness is the ability to compete It has become the name of the game where economic strength of a country or an industry or a firm is described with respect to its rivals in the global market economy, in which goods and resources can move freely throughout territorial borders

In other terms, competitiveness is a broad concept According to Beckley, “A firm

is competitive if it can produce and services of superior quality and lower costs than its domestic and international competitors Competitive is synonymous with a firm’s long run profit performance and its ability to compensate its employees and provide superior returns to its owners” The Organization of Economic Cooperation and Development (OECD) defines competitiveness as “the ability of companies, industries, regions, nations and supranational regions to generate, while being and remaining exposed to international competition, relatively high factor income and factor employment levels on a sustainable basis.” Whereas, under Fischer and Schornberg’s analysis, profitability is obviously a significant variable for assessing sector competitiveness and value added as a percentage of turnovers is a kind of profit margin that entity usually relies “Market shares are often defined as the proportion of the total available market segment or sales that is produced or sold by

a company They also rationed that market share is a necessary competitive indicator at the firm level even when analyzing aggregates, market share may be of trouble” (InternationalJournal.org) Simply speaking, it can be said that

“competitiveness is how effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services” (Operations Management - MD021 www2.bc.edu) Normally, three competitive levels are focused: country, industry, and firm level Originated from a Latin word –

Competer – involvement in a business competition for markets, competitiveness is

now broadly used across different fields This study is focused on firm-level competitiveness It can be defined as the ability of firms to design, produce or create markets products/ services superior to those offered by rivals Among the three competitiveness levels, firm level is of greatest interest in practitioners and has attracted the maximum attention of researchers Michael Porter says “it is the firms, not nations, which compete in international markets” The firms actually compete in the global stage and cope with the direct competition

Some competitive dimensions that firms should focus as below:

 Cost

 Product Quality and Reliability

 Delivery Speed

 Delivery Reliability

 Sales and after sales service

 Coping with Changes in Demand

 Flexibility and New Product Introduction Speed

 Other Product-Specific Criteria

1.2 Sources of competitiveness

The identification of sources of competitiveness has been supported by known perspectives on competitiveness According to Dr Ajitabh Ambastha and Dr K Momaya, select connotations of firm level competitiveness from literature review provide richer and comprehensive views on sources of competitiveness

Table 1.1: Selected connotations of firm level competitiveness:

1 Brand and reputation

2 Culture and system

In today’s turbulent business environment, dynamic capabilities, flexibility, speed and adaptability are becoming more significant sources of competitiveness These kinds of sources will be clarified more through analysis models in the part 1.3 below

1.3 Models to assess and analyze industrial competitive environment

In essence, the duty of leading manager is to understand and cope with competition,

or in other words, work with competitiveness However, they often define so-called rivalry too narrowly, as if it happened only among direct competitors Yet the matter of competitiveness goes beyond direct competitors certainly In order to

estimate competitiveness, it is essential to have analyses in both external and internal environment

The external environment has two aspects: macro and micro environment Macro environment deals with things affecting all the firms in the economy, whereas micro environment deals with things that affect firms in specific industries PEST model (Economic, Political, Technological, Social factors…) is widely used to analyze macro environment; and Michael Porter’s five competitive forces model (Rivalry, Potential competitors, Customers, Suppliers, and Substitute) is mostly used to analyze industry environment

1.3.1 PEST analysis

PEST stands for Political, Economic, Social and Technological factors However, the number of PEST analysis is unlimited Other country-specific factors can be added to perform macro environment

 Impact of changes in Information Technology on economy and industry

 New discoveries and development

 Capabilities of application and customization, and others

 Social –cultural factor:

1.3.2 Five Force analysis

Michael Porter’s five competitive forces include industry rivals, buyers, suppliers, potential entrants and substitute products The five competitive forces shall help define an industry’s structure as form the nature of competitive interaction within an industry

Table 1.2: The five forces that shape industry competition of Michael Porter

 Rivalry among existing competitors

When the rivalry is high, the profitability of an industry is limited The industry profit which driven down by rivalry depends firstly on intensity with which firms compete and secondly on the basis on which they do

Firstly, the strength of rivalry reflects the intensity of rivalry, which is due to:

 The number of competitors

 The growth rate of industry

 High exit barriers

 Competitors’ high commitment to the business

 Firm lacks of familiarity with one another (diverse approaches or differing goals)

However, the strength of rivalry also reflects the basis, or the dimensions on which rivalry occurs Once competitors compete on the same basis, it will have a major influence on profitability

In rivalry, price war is the destructive factor to profitability as price competition as

it helps transfer profits from an industry to its own customers Price reduction also interrupts buyers from product feature and service

Price war happens if:

 Products/services are identical and for customers there are few switching costs; thus rivals can have price cut to attract more clients

 High fixed costs and low marginal costs, then players can cut price below their average costs

 There are still many rooms for capacity expansion This capacity expansion disturbs industry supply – demand balance, then often leads to overcapacity and price reduction

 The product/service goes decline This urges producers to cut price in order to sell out product

Not like price war, competition on other dimensions such as product feature, customer service, delivery convenience, brand image, or promotions harm less to profitability than price Parallel, players can also improve value creation compared

to substitutes, or higher barriers to entry

Another tragedy is whether rivals compete on the same dimensions When most of the players target to meet the same needs compete on the same dimensions (attributes or basis), zero-sum competition is often visible, where one’s gain is others’ loss; and then profitability is driven down

Competition can increase average profitability or be positive when each player aims

to serve different customer segments, with different mixes of price, products, services, features, or brand identities Such positive rivalry can not only support higher average profitability but also cause industry expansion, as the needs of more and more buyers are met With clearer understanding on competition, leaders

sometimes can take measures to go to a more positive direction of competition nature

 Threat of new entrants

Newcomers to industry come with new capacity and efforts to achieve market share which will set pressure on prices, costs and other factors When new entrants are entering into new markets, they can leverage current capabilities and cash flows to warm up rivalry Thus, the threat of entry puts pressure on the profit potential of an industry High threat of new entrants shall make current players cut down their prices or boost investment to compete with new rivals

The threat of new entrants in an industry depends on entry barriers and current players’ reaction to newcomers When low entry barriers go with little retaliation from incumbents, the threat of entry goes high, therefore it holds down profitability There are 7 main sources of barriers to entry:

 Supply-side economies of scale: Firm that manufactures or creates at larger volumes will get lower costs per unit Economies of scale in supply affect entry by pushing newcomers to enter the industry on a large scale With the practice of value chain, economies of scale virtually in every activity

 Network benefits of scale: When the customer willingness to pay for a product/service rises with the number of other customers also patronizing the company, network effects will arise in industry Customers may put their concern in larger firms for a product/service Then network effects constrain entry by limiting the customer willingness to buy from a new entrant and by decreasing the price

 Buyer switching costs: The higher switching costs, the more difficult it will be for newcomers to enter the industry

 Fund requirements: Large financial resources requirements also limit entrance to the industry The barrier is especially high if fund is required

for uncovered expenses Huge funding requirements will constrain newcomers, and vice versa

 Incumbency advantages independent of size: existing players always have advantages to potential entrants (such as technology, geographic locations, brand identities, experience…) And entrants have to try to surpass such advantages

 Unequal access to distribution channels: Certainly, newcomers have to seek for placement channels The more placement channels the incumbents keep, the harder entrance to an industry will happen Especially when barrier to distribution access is high, newcomers have to cooperate to bypass distribution channels or create their own ones

 Restrictive government policy: Government can directly influence on potential entry through tools such as restrictions, requirements, regulations, taxation, subsidies…

Besides barrier to entry, expected retaliation also impact on the entry or exit to an industry Potential entrants will be limited by expected retaliation if:

 Existing players have replied tough to newcomers previously

 Incumbents have resources that can limit entry (such as borrowing power, redundant productive capacity, available distribution channels…)

 Current firms can and intend to do price reduction to fill excess capacity

 Slow industry growth makes new entrants obtain market only by taking it from the existing participants

 The power of suppliers

Power of suppliers is high when they can charge high prices, limit service or quality, or shift costs to industry participants Suppliers are powerful when:

 The supplier group is more concentrated that the industry itself

 In terms of revenues or profits, suppliers do not depend much on the industry (for example, suppliers provide inputs for several industries)

 Industry players cope with switching costs when they want to change suppliers

 The product/service offered by suppliers is differentiated

 No or few substitutes for what the supplier group is serving

 Threat when suppliers tend to enter the industry to become the industry’s participants

 The power of customers

The power of buyers is high by forcing down prices, having negotiating leverage, being price sensitive, or demanding better service and quality…

Customers have negotiating leverage when:

 There are few clients or each one buy a large volume of product/service

 Product/service of the industry is standardized or undifferentiated

 Low switching costs in changing sellers for customers

 Threat of buyers’ integration

A group of clients is price sensitive when:

 There is a significant fraction of cost structure in the product Hence, customers can shop and bargain

 The threat of substitutes

A product/service and its substitute perform the same function by a different means High threat of substitutes will suffer industry profitability Substitutes place a ceiling on prices This threat is considered high when:

 Substitutes have attractive price

 Low clients’ switching cost to the substitute

Sometimes, industry changes can make substitutes attractive And leading management should pay enough attention in these changes

1.4 Models to analyze firm competitiveness

1.4.1 Value chain analysis

According to Michael Porter, value chain indicates the whole production chain from the input to the output of final product/service by the end-user There are two kinds

of activities in the value chain One kind is called supporting activities, which concerns the stream of production, where firms use its inputs, integrate and process them, then produce or create its outputs The other kind is called primary activities, which are activities going across firms, where the outputs of one step become the inputs of the next step

Visible objectives of value chain can be mentioned:

 Optimizing the overall activities of companies

 Managing and coordinating the entire chain from initiate inputs to final products/ services to end customers

 Developing a sustainable competitive chain

 Establishing choices and processes to support the relationships between suppliers and customers…

Figure 1.1: Value chain

Source: www.manage12.com

Supporting activities include: firm infrastructure (finance, accounting…), human resource management, technology development, and procurement

Primary activities include: inbound logistics, production and/or operations, outbound logistics, marketing and sales, and service

A crucial analysis on the value created will help companies to identify its internal capacity or its core competencies, and then figure out the strengths and weaknesses

of PJICO

1.4.2 Core competencies assess

After extracting the strengths and weaknesses of firm from value chain analysis, table of identification of sustainable competitive advantages to examine the long-term or short-term strengths and weaknesses, and then they would lead to the determination of core competencies for the company The table is as follow:

For the core competencies extracting from the sustainable competitive advantages model, some possible solutions would be given based on improving strengths and enhancing weaknesses, in order to improving competitiveness of the company

CHAPTER 2: RESEARCH AND ANALYSIS

APPLICATION OF MODELS TO ANALYZE PJICO’s

COMPETITIVENESS

2.1 Overview of non-life insurance industry in general and in Vietnam

2.1.1 Non-life insurance industry in recent years

 Non-life growth is still weak in industrialized countries, but strong in Asia

In non-life insurance sector, premiums rose by 2.1% in 2010 Soft pricing still showed slow growth in Europe and the US, while the strong economic rebound pushed up premium growth in emerging Asia and the newly industrialized countries

in Asia Throughout 2011, economic recovery is hopefully taking place, supporting premium growth in both industrialized and emerging markets

However, higher inflation, especially in the emerging markets, was chiefly driven

by rising food and energy prices Emerging markets countries, especially in Asia, weathered global financial recession better than most, due to sustainable growth in GDP

Table 2.1: Real growth rate of Industrialized and Emerging markets (1980 – 2009)

 For non-life insurance in the world: global premiums growing, but only slowly in the US and Western Europe

After global financial recession, the world premiums grew by 2.1% to USD 1819bn

in 2010 The recovery of capital in the non-life industry is still strengthening but challenges also remain

 Developing countries: significant growth in many different markets

Table2.2: Real growth rate of insurance market of developing countries (1980 - 2010)

 For South and East Asia: resilient despite the global financial crisis

Non-life premiums went up by 14% to USD75bn in 2009 (it was +9.7% in 2008) Aggressive government fiscal policies and support has helped create pipeline of projects on infrastructure construction, therefore, it helps non-life sector Natural disasters were not expected to be a main factor; however a number of typhoons hit South and East Asia in the mid-years, causing lots of damages (Ketsana and Miranae in 2009, Sansane in 2010…) The recovery from economic recession and improving investment results also support non-life insurance The major challenges, like previous years, are continual price pressure, increasing inflation, and tighter solvency standards

Table 2.3: Asia Pacific Non-life markets at a glance, 2008 - 2010

Source: Swiss Re

 Key concerns and conclusions of world’s non-life insurance:

 The increase in interest rate, assets management is still existing problem

 The significant increase in non-life insurance percentage in insurance reflects different economic development and growth

 However, growth of non-life insurance is expected to strengthen with higher prices due to adverse reserve development, rising interest rate, and higher capital requirements…

2.1.2 Non-life insurance industry in Vietnam

 Ownership structure of insurance enterprises

 Non-life insurers in Vietnam

Source: Aon Benfield

 Market share

Table 2.4: Vietnam’s top 10 non-life insurance market share 2005-2010

 Premium income and growth rate

Table 2.5: Non-life insurance premium income and premium growth

5,486,305

6,357,930

8,359,994

10,879,248 13,648,459

17,051,835

Premium

Growth

(%)

23.51% 14.28% 15.89% 31.49% 30.13% 25.41% 24.94%

Source: Aon Benfield

 Market premium and loss

Figure 2.1: Market premium and loss 2006-2010

Source: Aon Benfield

Table2.6: Premium and Loss by class in 2010

 Non-life insurance premiums by business lines

Figure 2.2: Non-life insurance premiums by business lines

*From 2011 to 2021: forecasting figures

Source: Swiss Re

 Merger and Acquisition: there is a trend of foreign organizations’ participation as strategic partners into some insurance companies such as:

 HSBC insurance acquire 18% share of Baoviet Holdings (2007)

 AXA France acquire 16.6% share of Bao Minh (2007)

 Swiss Re acquire 25% share of Vinare (2008)

 Oman investment fund acquire 12.6% share of PVI (2010)

 Some significant points in non-life insurance market in Vietnam:

 High growth rate with around 24.15%

 Financial capacities of insurers have been improved

 Cruel competition happens in many various ways

 There are some problems in risk management

 Customer services and claim settlement are still limited

 Significant increase in losses and damages (due to natural perils, inflation, extended terms and conditions…)

 Infatuation in exchange rate

 Some current market concerns:

 There is increasing interest in agricultural insurance alongside some major developments

 Through the potential of agricultural insurance is there, the high level

of business risks due to imperfect market information is still a major concern The experience of Groupama, the first insurer to offer agricultural insurance in Vietnam, is worth noting The company has been struggling in the market for some years and incurred huge losses

when insuring 5 agricultural products in the southern region several years ago

 Aside from the commercial lines, the non-life market witnessed significant expansion in personal line business Sales of personal lines were bolstered by rising car ownership and increasing demand for health insurance To benefit from these chances, some insurers which were formerly corporate client-oriented have already paid a curtain attention to personal lines Some of them have allied with retail banks

to offer fire insurance policies for homes, motor insurance and medical coverage

 The Government announced a pilot implementation of the export credit insurance from 2011 to 2013 (Decision no 2011/QD-TTG) The scheme aims to prevent and minimize risk in export credit and there are 23 commodity groups are encouraged to be included in the insurance coverage

2.1.3 Key success factors in non-life insurance industry

2.1.3.1 Human resources

Underwriting skills: For high demanding services from international insurers and specific services from local insurers, the underwriting factor is of much importance Underwriting skills express the local insurers’ profession, readiness, understanding and flexibility This factor also combines the local-understanding mind and global-standard mind as it would bring the core and sustainable value for insurance business It is also the most significant part in human resources

Human resources also express in business culture, numbers of labors, qualification

of labors on the whole…

2.1.3.2 Reinsurance

The backbone of insurance activities is reinsurance activities As risk coverage is larger and larger everyday, it is impossible for a single insurance company to cover 100% of their risks They start to reinsure for the others (other insurance companies

and other reinsurance companies) Reinsurance market is born and develops more and more

2.1.3.3 Sales and after sales services

Sales and after sales services involve timely services, the documentary and procedures for the services, and services at sites They also include customer care and services, especially for the service company (call center, real-time services, at-site support, online support…)

2.1.3.4 Products development and Marketing

Marketing involves brand positioning; branding and promotional regularity levels (policies, programs, resources…); and future marketing and branding focus, PR…

2.1.3.5 Premium price

In the context of highly competitive market as non-life insurance industry in Vietnam, factor of premium price is of much importance The reasonable premium price, along with best customer services can bring many contracts and clients to insurance company

2.1.3.6 Claims handling

Claim handling is related to underwriting skills (including risks assessment and management), the better the underwriting is performed, the easier and prompter the claim is handled

Besides, claim matters also involve the numbers and volumes of claims; relations with loss-adjusters; volumes and timing of actual compensation payment; financial capacity, reserves, retention…; and so on

2.1.3.7 Information technology support

In order to provide real-time services with good quality, insurance company needs a stable and thorough IT system This IT system will help insurance company in all activities of providing services from the beginning to the end

2.1.3.8 Relationships

This means the relationships with customers (large enterprises/corporations, local authorities…), partners (global reinsurers, insurance brokers, agents, other insurers…), and others

The relationship is also with clients: relationships show through elements such as: current clients, future clients, renewal volume, price discounting…

The relationship is also with reinsurers (both local and global): relationships show through current relations, their concern, interest, priority and loyalty with specific local insurer, mutual contacting, future relationships…

There are also relationships with local insurers, with authorities, with brokers and other partners

2.1.4 Factors affecting non-life insurance enterprise’s competitiveness

With non-life insurance activities, there are some specific factors influencing insurer’s competitiveness directly or indirectly These factors are also considered the ones which influence on the macro and micro environment of the business

 Economic growth: Along with the economic growth, non-life insurance business will grow accordingly

 Natural disasters: Natural disasters have negative impact on non-life insurance Every year, there are always typhoons and flooding hitting Vietnam, causing lots of damages Due to these attacks, agricultural output and reconstruction efforts were badly influenced

 Imports and exports: The development of imports and exports make non-life insurance business increase, especially non-life insurance activities with foreigners The extent and pattern of imports in recent years shows that manufacturers are restocking to meet export orders Rising inward shipments

of steel, cotton, textile yarn and plastics suggest that inputs are being purchased to meet new export orders and capital investment purposes

 Foreign investment: As well as imports and exports activities, foreign investment has positive effect on non-life insurance This is absolutely true

to fronting and broking corporate insurance, as when more and more foreign enterprises do business in Vietnam, more and more demand they have on non-life insurance so as to protect them from unexpected risks Due to recession, foreign investment was gray lately However additional capital was also registered increasingly

 Currency: The fluctuation of exchange rate also has much influenced on life insurance, as many of insurance contracts are at foreign currencies (USD, EUR, GBP…) Insurance firms operating in Vietnam faces risk if the Vietnamese Dong (VND) encounters further devaluations Recently central bank continues to devaluate VND against the US Dollar Including previous devaluations, this brought the year-on-year drop in VND: USD rate dramatically There are still threats that VND remains overvalued In addition, firms and households hoard US Dollar in expectation of further downward adjustments

non-The devaluation and the possibility of devaluation is a risk for government as well as companies which have lots of foreign transactions using foreign currencies, especially US Dollar

 Legal framework: Legal framework can cause positive or negative effects on non-life insurance due to the parallel improvement and development between the two With proper improvement, legal framework give positive to demand

as it pushes the non-life insurance activities develop more On the contrary, this will hold the non-life insurance market back

 Technology: As well as legal framework, technology also causes adverse influences on non-life insurance In Vietnam now, it can be said that technology causes negative influence, since the development of technology cannot meet the requirements of insurance market

 Insurance awareness: Clearer awareness on non-life insurance goes with the increase in demand From times to times, with the developing integration of international business, the awareness on insurance is going increase also

2.2 Overview of PJICO

2.2.1 Introduction of PJICO

Petrolimex Joint Stock Insurance Company (PJICO) was established in 1995 and it was the first joint- stock insurance company in Vietnam with the initial charter capital of VND 50 billion The chartered capital increased to VND 335 billion in 2008 and reached VND 710 billion in the end of the year 2010 in order to meet law regulations and the Company’s development strategy The shareholders of PJICO are potential and influential economic organizations such as the Vietnam National Petroleum Import-Export Corporation (PETROLIMEX), Bank for Foreign Trade of Vietnam (VCB), Vietnam National Reinsurance Company (VINARE), Vietnam Steel Corporation (VSC), Vietnam Railways, Hanoi Electronics Corporation (HANEL), Company for Material and Complete Equipment (MATEXIM) and AT Security Equipment Co., Ltd

Fields of Business:

 Non-life insurance operation:

- Accidents and Health Care insurance

- Property Damage Insurance

- Inland transit, marine and air cargo

- Hull and P&I Insurance

- Liability Insurance

- Motor Vehicles Insurance

- Fire and Engineering Insurance

- Business Interruption Insurance

- Reinsurance

 Financial investment under the law of insurance dated 09/12/2000

 Other services: Survey, investigation, claim…

During its first days of operation, facing up with difficulties in terms of capital, employees, management , PJICO has developed step by step thanks to

Director’s determination, enthusiasms, stimulation of staff and the shareholder’s support After the time of changing Boards of Directors in 2003, together with the market effects, PJICO achieved a significant development step The growth rate of gross premium income in 2003 increased approximately 90% compared to 2002.The total assets was double higher than 2002

This marked the development of PJICO in the years afterwards In 2004, PJICO’s charter capital rose to VND 77 billion, VND 336 billion in 2008 and VND

710 billion in 2010

PJICO’s products portfolio is more and more diversified with many types of insurance such as Motor vehicle insurance, Cargo insurance, Hull & PI insurance, Construction insurance, Erection insurance, Property insurance, Liability insurance Brand name “PJICO” is more and more famous and prestigious

As at the end of 2010, PJICO has a nationwide network with 51 branches throughout the country, 1,368 staff and more than 4,000 agents In 2010, PJICO achieved good business results The total turnover of PJICO in 2010 exceeded VND 1,955.30 billion, a growth of 21.8% compared to 2009, of which the insurance premium income reached VND 1,592 billion, increasing 22.7% over the previous year and ranked the forth position in Vietnam non-life insurance market The chart below shows the market share of the whole non-life insurance market in Vietnam in

2010

Figure 2.1: Market share of Non-life Insruance Companies 2010

With business philosophy “Stability – Safety - Effectiveness” determined by PJICO since 2005, PJICO set its orientation towards stable development, concentration on effectiveness

PJICO has exerted itself to meet the customer’s satisfaction and for its development

as well The year 2010 is a memorial year of PJICO It celebrated 15 years of formation and received the Second Class Labor Metal from the Government Apart from that, PICO was also awarded many valuable prizes such as:

- Excellent Unit of Ministry of Industry & Commerce in 2007, 2008, 2009,

2010

- Well-known Trademark 2007, 2008, 2009, 2010

- Famous Brand 2007, 2008, 2009, 2010

P.TT-PC

(Legal Affairs Department

ORGANIZATION CHART OF PJICO

TỔNG GIÁM ĐỐC

Chief Executive Officer

Phó Tổng giám đốc (Deputy General Director

healthcareDept)

P BH

Xe cơ giới

(Motor Vehicles Insurance Dept)

P.BH Tàu thủy (Hull and P&I Insurance Dept)

P Đầu tư

(Investment Dept)

P CNTT ( Technology Dept)

P Tái BH ( Reinsurance Dept)

Having the Vision to 2017 to become the top insurance corporation in terms of Service and Efficiency, PJICO continues to concentrate on the quality of its development It has been shown by PJICO’s action through 3 programs: to intensify training and retraining activities for the staff; to fulfill all requirements of ISO 9001;

to apply the package comprehensive management software on the whole network

scale in order to enhance the management quality in all activities of the company

2.2.2 PJICO’s business activities

2.2.2.1 Non-life insurance products of PJICO

Since its establishment, PJICO has developed and underwritten almost types of life insurance to meet diversified demand of customers excluded aviation insurance and oil-rig insurance PJICO’s types of insurance are divided into 4 major groups:

non- Marine Insurance includes:

- Cargo businesses by Land, Sea, River and Airs

- Marine Hull includes Vessels, Docks, Floats, P & I, Ship Building Risks, Container Hull and etc

 Fire Insurance, includes:

- Fire and Special Perils Insurance

- Industrial All Risk Insurance (IAR)

- Property All Risk Insurance (PAR)

- Business Interruption Insurance (BI)

 Engneering Insurance, includes:

- Construction All Risk Insurance (CAR)

- Erection All Risk Insurance (EAR)

- Machinery Breakdown Insurance (MB)

- Comprehensive Project Machinery Insurance (CPM)

- Electric Equipment Insurance

- Machinery following loss of profit insurance (MLOP)

 Miscelleous Insurance, includes:

- Personal Accident (PA)

- Employee Liability (EL)

- Travel Insurance

- Motor Vehicle Insurance

- Third Party Liability (TPL), Public Liability (PL) Insurance

- Products Liability Insurance

- Professional Liability Insurance

- Money Insurance (in promises and in transit)

- Fidelity Insurance

- Pollution Insurance

At the beginning, PJICO’s gross premium income (GPI) came from its shareholders almost, especially from Vietnam Petroleum Import- Export Corporation such as Cargo Insurance, Marine Hull insurance, Personal Accident and Motor vehicle of all Petrolimex staff Gross premium income from the shareholders accounted for 90%

of the total turnover Day by day, however, PJICO has tried to approach various customers and diversify product portfolio to the market At present, the revenue density comes vice versa Premium income from the market takes 90% and 10% is from Petrolimex PJICO ranks the forth in terms of gross premium income in the market

Year 2010 was still a difficult and challenging year for Vietnam economy as it had been affected by the loosened monetary and financial policy since 2009 that led to higher inflation Many production and trading enterprises had to decrease their output and narrowed down their domestic and foreign market Moreover, act of god risks were occurred in 2009 in the Middle of Vietnam made the loss to both physical and property as well In the context of this scene, PJICO was more or less affected By endeavor to adhere to its stable strategy with the concentration on the business efficiency, however, PJICO still achieved growth rate in both criteria: total revenue and profit The total revenue in 2010 exceeded VND 1,955 billion, of which the insurance premium income reached VND 1,585 billion, up by 22.2% over