Bancassurance in vietnam situation for chartis vietnam applying bancassurance

- By expanding the marketing mix 7Ps for the service: Product, Place, Price, Promotion, People, Physical support, Process - By Improve Sales channel:  Direct Channel  Indirect Channel

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NGUYEÃN XUAÂN THANH

BANCASSURANCE IN VIETNAM SITUATION FOR CHARTIS VIETNAM

APPLYING BANCASSURANCE

MASTER’S THESIS

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

  

NGUYỄN XUÂN THANH

BANCASSURANCE IN VIETNAM SITUATION FOR CHARTIS VIETNAM

APPLYING BANCASSURANCE

MASTER’S THESIS

IN BANKING FINANCE OLOGY CODE: 60.31.12

SUPERVISOR

DR TRƯƠNG TẤN THÀNH

HO CHI MINH CITY – 2010

FOREWORD

This study presents an overview of Bancassurance sector in Vietnam insurance and Chartis Vietnam It provides an analysis of the competitiveness of Vietnam’s Bancassurance services and Chartis Company in the context of the Insurance sectors integration development; and the possible impact of further factors on these services

The results of this study are important to policymakers and regulators in particular, since

it indicates that they should focus their attention on further financial deregulation to encourage greater market accessibility since it is found that targeting this area has potential benefits to the Bancassurance sector

For the Insurance Company, especially Chartis Company, this thesis try to help them more clearly about the benefits of Bancassurance bring up the successful and profitable factors to the company On the other hands, it also makes a practical contribution to Bancassurance systems in Vietnam

For bank managers, this study indicates that they should seriously consider expansion into Bancassurance operations because of the benefits provided through diversification of risk, reduction in company fixed costs, increase in fee-based revenues, and improvement

in overall company competitiveness

I would like to sincerely thank Dr Truong Tan Thanh have already supervisor, review and commenting all my drafts to improve and complete this thesis

Nguyen Xuan Thanh

TABLE OF CONTENT

CHAPTER 1: INTRODUCTION 1

1.1 Introduction of the study: 1

1.2 Research Problems & Questions: 2

1.2.1 Research Problems: 2

1.2.2 Research Questions: 3

1.3 Scope and objectives of the thesis 4

1.4 Rationale and Significant of the study: 4

CHAPTER 2: LITERATURE REVIEW 6

2.1 Overview about Bancassurance: 6

2.2 Models of Bancassurance : 6

2.3 Relation between Bancassurance and Commercial Banking: 8

2.4 The advantages & disadvantages of the Bancassurance: 8

2.4.1 The advantages of Bancassurance Models: 9

2.4.2 The disadvantages of Bancassurance Models: 10

2.5 Implementation of Bancassurance system in the world: 10

2.6 Studies relating to Bancassurance : 14

2.7 Conclusion: 14

CHAPTER 3: METHODOLOGY OF THE STUDY 16

3.1 Introduction 16

3.2 Purpose of this survey: 16

3.3 Research strategy 16

CHAPTER 4: BANCASSURANCE OUTLOOK IN VIETNAM 18

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

4.1.1 Legal: 18

4.1.2 Market Structure of non-life insurance 20

4.1.3 Market size of non-life Insurance Market 22

4.1.4 Vietnam Non-life Insurance Market Business by Direct Insured Premium 26

4.1.5 Product Distribution Systems: 29

4.2 Vietnam Bancassurance Market Business: 30

4.2.1 7 Factors mainly affects Bancassurance market 32

4.2.2 Bancassurance : SWOT Analysis 33

4.2.3 Bancassurance through five Force Porter Model : 35

CHAPTER 5: OVERVIEW OF CHARTIS VIETNAM BANCASSURANCE 48

5.1 General Information about AIG Group: 48

5.2 Some Highlight of Chartis General Insurance 50

5.2.1 Commercial Insurance 50

5.2.2 Foreign General Insurance 52

5.3 General Information about Chartis Group: 53

5.3.1 A worldwide leader : 53

5.3.2 What Chartis provide : 53

5.3.3 Chartis’ unique strengths: 53

5.3.4 Brand mark 54

5.3.5 Brand vision and cultural principles 55

5.3.6 Some highlight about Chartis 56

5.3.7 Meaning of Chartis 57

5.3.8 Chartis Vision: Aspiration and Advantage 57

5.4 General Information about Chartis Vietnam 58

5.4.1 Chartis Vietnam Insurance: 58

5.4.2 Highlights of Chartis community efforts in Viet Nam: 59

5.4.3 Current Insurance Products at Chartis Vietnam 60

5.4.4 Position, Market Share and some Financial Results: 63

5.5 Financial Highlight 66

5.5.1 Management performance Analysis: 66

5.5.2 Liquidity Ratio Analysis: 67

5.5.3 Profit Ratio Analysis: 68

5.5.4 Growth rate Analysis: 70

5.5.5 Loss Ratio Analysis: 71

5.5.6 Category Mix of Chartis Vietnam from 2008 to 2009 72

5.5.7 A&H Products 75

5.6 Current Bancassurance Products at Chartis Vietnam: 77

5.6.1 Group Line: 77

5.6.2 Personal Line: 79

5.6.3 Bancassurance – IPA analysis: 80

5.6.4 SWOT analysis 84

5.6.4.1 Strength: 84

5.6.4.2 Weaknesses 87

5.6.4.3 Opportunities 92

5.6.4.4 Threats 93

CHAPTER 6: RECOMMENDATIONS 97

6.1 Recommendations to policy makers and market regulators 97

6.1.1 Completion of the insurance legal framework and supplementing inadequate regulations 97

6.1.2 Revised the Regulation in other to meet the WTO agreement 97

6.1.3 Improving the law building, inspection and the supervision capacity of state regulators: 98

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

6.1.5 Human resource for insurance industry: 100

6.2 Recommendations to Chartis Vietnam: 100

6.2.1 Developing long term development strategies 101

6.2.2 Differentiate the current Bancassurance product 101

6.2.3 Improving managerial skills 102

6.2.4 Improving skills to underwrite complicated risks 103

6.2.5 Databases for actuarial activities 103

6.2.6 Information Technology 103

6.2.7 Developing a network of traditional customers 104

APPENDIX 2 107

APPENDIX 3 108

APPENDIX 4 109

APPENDIX 5 110

APPENDIX 6 111

APPENDIX 7 112

LIST OF TABLES Pages

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

Table 2: Structure of non-life insurance sectors: 21

Table 3: Growth Rate of Insurance Premium Market Share: 22

Table 4: Market share of non-life Direct Premium By Company 23

Table 5: Market share of non-life Direct Premium by Lines 26

Table 6: Chartis Publication Rankings: 60

Table 7: Chartis Products Classifications: 62

Table 8: Market Share of Chartis Vietnam 64

Table 9: Balance sheet of Chartis VN from 2007 to 2009 66

Table 10: Chartis Vietnam Liquidity Ratio from 2007 to 2009 67

Table 11: Some Financial Ratio of Chartis Vietnam form 2007 – 2009 68

Table 12: Income Statement Chartis Vietnam form 2007 – 2009 68

Table 13: Some Profit Ratio of Chartis Vietnam from 2007 to 2009 69

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

Table 15: Loss Ratio by non-life Insurance Company in 2009 71

Table 16: Category Mix of Chartis Vietnam from 2008 to 2009 72

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

Table 18: Total A&H Vietnam – Products by Channel 75

Table 19: Benefits table for platinum Debit Card insured 78

Table 20: Personal Accident Insurance – Benefit Summary: 80

Table 21: Profit and Loss of IPA Bancassurance Business Project 80

Table 22 Persistency Overview of IPA Bancassurance Business Project 82

Table 23: IPA Bancassurance MTD Premium Collection 83

Table 23: IPA Bancassurance MTD Premium Collection 84

LIST OF FIGURES Pages

Figure 1: Market share of foreign non-life Direct Premium By Company 25

Figure 2: Market share of Domestic non-life Direct Premium By Company 25

Figure 3: Market share of non-life Direct Premium by Lines from 2007 to 2009 27

Figure 4: Market share of non-life Direct Premium by Lines from in Year 2007 28

Figure 5: Market share of non-life Direct Premium by Lines from in Year 2008 28

Figure 6: Market share of non-life Direct Premium by Lines from in Year 2009 29

Figure 7: Five Force Porter Model of Vietnam Bancassurance 36

Figure 8: AIG Group Structure 49

Figure 9: Positioning of Chartis Vietnam 63

Figure 10: Market Share of Chartis Vietnam 65

Figure 11: Chartis Vietnam Liquidity Ratio from 2007 to 2009 67

Figure 12: ROA & ROE of Chartis Vietnam from 2007 to 2009 70

Figure 13: Insurance Premium Income of Chartis VN from 2007 to 2009 71

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

Figure 15: Category Mix of Chartis Vietnam in Year 2008 74

Figure 16: Category Mix of Chartis Vietnam in Year 2009 74

Figure 17: Total A&H Vietnam – Products by Channel 76

Figure 18: Growth Rate of DM Bancassurance Department 84

LIST OF APPENDICES

Appendix 1 : General Information about AIG Group

Appendix 2 : Balance sheet of Bao Minh Insurance from 2007 to 2009

Appendix 3 : Balance sheet of Bao Viet Insurance from 2008 to 2009

Appendix 4 : Balance sheet of PVI from 2007 to 2009

Appendix 5 : Income Statement of Bao Minh from 2007 - 2009

Appendix 6 : Income Statement of Bao Viet from 2008 – 2009

Appendix 7 : WTO - Schedule of Specific Commitments in Services - List of Article II

MFN Exemptions on Insurance and Insurance-Related Services

REFERENCES

1 Association of Vietnam Issuers, Annual New Bulletins 2007 – 2008 – 2009

2 WTO – Market Overview – Asia, International, Emerging Market and Asian, Trends

in Insurance Services

3 Bancassurance in Asia/Pacific Embracing Alternative Distribution Channels

4 Rise of Bancassurance An Asia experience - International Insurance Society

Taiwan, 13-16 July 2008 –

David Fried Group General Manager Regional Head of Insurance Hongkong and Shanghai Banking Corporation

5 Introduction to Bancassurance - Muhammad Haidar

6 Bank State Annual of Bao Viet Insurance in Year 2008 – 2009

7 Bank State Annual of Bao Minh Insurance in Year 2007 – 2009

8 Bank State Annual of PVI in Year 2007 – 2008 - 2009

9 Bank State Annual of Chartis in Year 2007 – 2008 - 2009

10 ABSA Group limited Bancassurance Report – Coenraad de Jager and Willie Lategan

11 Bancassurance: A SWOT Analysis - By Manoj Kumar, Chartered Insurer

CPCU (USA), ARM (USA), ARe (USA), ACII (UK), MBA Executive Manager, Doha Bank Assurance Company (Qatar)

12 How to apply Bancassurance in Vietnam – [Dr.Tran Huy Hoang]

13 A Swot Analysis of Bancassurance in Vietnam – [Ngo Vi Trong and Le Ho An Chau – Bank Institute, HCM Branch]

14 Does Bancassurance Add Value to Banks? Evidence from Mergers and Acquisitions between European Banks and Insurance Companies [Zhian Chen, Donghui Li, Fariborz Moshirian, Jianzhong Tan School of Banking & Finance

The University of New South Wales, NSW 2052 Sydney ]

15 Expansion, consolidation of Bancassurance in the 21st century, [Chen, Z., Li, D., Liao, L., Moshirian, F., Szablocs, C., Journal of International Financial Markets, Institutions & Money (2008)]

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

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

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

CHAPTER 1: INTRODUCTION

1.1 Introduction of the study:

Bancassurance – Bank Assurance or Assure Banking is a French term to mentioned one kind of Insurance distribution channels through commercial bank Bancassurance has been firstly launched in US and Europe (France, Germany, Spain, Holland, Belgium…) Nowadays, Bancassurance is so popular in Asia (especially in Thailand, Malaysia, Singapore, Hong Kong )

On the world, Bancassurance is one of the competitive Distribution Channel with the Traditional one for Insurance Company: for example: Dealer, Broker, and Commercial Representative Statically, in France, 70% Insurance Premium is collected through the Bank Channel, 68% in Portuguese, 63% in Spain Most of famous Insurance Company is focus to expand that kind of this service

In Vietnam, Bancassurance is really a new-born service, on the way to expand and get some good results Firstly, the Bank will design some products which is suitable for life Insurance – ex: “Tiet kiem dinh ky vi tuong lai – Periodically Save for your Future” of Techcombank Beside, the bank will sign a contract as a Agency for distributing Insurance Product for the Insurance Company – ex: Cooperation between Bao Viet and Agribank And establish a Joint Venture between Commercial Bank and Vietnam Insurance Company and Foreign Insurance Company is one of the other forms of Bancassurance in Vietnam, for ex: Vietinsco (join venture between Asia Insurance company and Vietin Bank), or BIC (join venture between BIDV Bank and QBE – Australia Insurance Company)

For the Bank, Bancassurance is really one of the most effective tools to diversify the revenue The Bank can get commission, Leverage bank’s customer base, branding, and provided integrated financial product For the Insurance Company, Bancassurance is a

variable Distribution Channel by sharing customer database from the bank, foster collaboration in new product target segment

Chartis Vietnam was established in HCM in early 2006 With a wide range of personal and commercial insurance, ranging from personal travel, auto to property and casualty as well as multi risks business insurance offering However, Chartis is mainly delivery their products through Dealer and Broker channels, not familiar to the Bancassurance channels

In addition, the Insurance Premium Revenue of the Insurance Company is up to 70%, however in Vietnam is just only 5% So, I have a foundation to believe that Bancassurance is one of the potential markets for Chartis VN

Therefore, this thesis is mainly focus on “BANCASSURANCE IN VIETNAM & SITUATION FOR CHARTIS VIETNAM APPLYING BANCASSURANCE MODEL”

1.2 Research Problems & Questions:

1.2.1 Research Problems:

The purpose of this thesis is finding the solution to improve Revenues / Profits / Images / Market Share for Chartis Vietnam though Bancassurance Channel

According to Insurers’ Business Model:

Profit = Earned Premium + Investment Income – Incurred Cost – Underwriting Expense

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

 How to increase the Earned Premium?

 How to improve the Investment Income?

 How to Decrease the Incurred Cost?

 How to Decrease the Underwriting expense?

This thesis will penetrate on the 1st Question and the 4th Question

Question 1: How to increase the Earned Premium?

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

For the Question 1, there are many ways to increase the Earned Premium in Insurance field for example: Increase the Marketing Activities, Improve sales, Branding…

Question 1: How to improving sales?

- By expanding the marketing mix 7Ps for the service: Product, Place, Price, Promotion, People, Physical support, Process

- By Improve Sales channel:

 Direct Channel

 Indirect Channel (Intermediaries): Insurance Agents, Insurance Brokers, Commercial Representative

 Integrated Financial Service: Bancassurance

- By Branding: Increase the Image of the company on the Market by advertising, media…

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

By improve the effective of Underwriting Activities on: Auto Insurance, Home Insurance, Health and Life Insurance, Property Insurance, Liability Insurance, Credit Insurance…

1.2.2 Research Questions:

In order to make clear the above issues, this thesis will try to answer below Research Question

Q1: Which countries have successfully applied Bancassurance Model? How?

(Overview about Literature review about experience of other countries on the world)

Q2: The Bancassurance situation in Vietnam Market? How so far the Vietnam Bank applies Bancassurance?

(By analysis the statistics about Vietnam Insurance & Bancassurance Market)

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

(By take a look at Chartis Annual Financial Statement and Chartis product system to analysis about the Bancassurance system at CHARTIS currently)

Q4: How to apply Bancassurance Model to Chartis VN in an efficiency and profitability approach?

(By getting the results from the below questionnaire to analysis and apply into Chartis VN

to get the feasible of this model or not?)

1.3 Scope and objectives of the thesis

The objective of the thesis aim to understand the Bancassurance model and also to identify the benefits associated with this model Moreover, this thesis will try to find out whether it is profitability to apply this model at Chartis VN or not

Scope of the place: this thesis will only address at Bancassurance Market in Vietnam – not all the markets

Scope of the item: this thesis only address at Chartis Vietnam Company for the pass 3 years And the products to investigate are only about the Insurance Products using to apply for the Banks products

1.4 Rationale and Significant of the study:

On the world, although, most of the recent researches have already made a deep investigate on the Bancassurance systems all over the world Almost Asian countries such as: Japan, India, Singapore already has a wide range of essays and thesis about the Bancassurance systems and how to enhance this kind of products into their markets

Also, in Vietnam, there are some ideas, press, issues related to the Bancassurance in Vietnam However, they are just only some simple and private research

Continuing with the raising idea from professors and previous research, this thesis tries to make clear and find down what made those countries successful with Bancassurance and the thesis will make an overview about Bancassurance market in Vietnam in order to give some suggestion for Chartis VN applying their products mostly adapt to the Vietnam Bancassurance market

CHAPTER 2: LITERATURE REVIEW

2.1 Overview about Bancassurance:

Bancassurance is a Financial Trend in the international Insurance Industry & Commercial Banking A major development in the international insurance industry has been disappearance of traditionally clear line of separation between Bank and Insurance Company In much of the industrialized world, the late 1980s and early 1990s have been times of deregulation of financial institutions and liberalization of the rules governing most of their operations In such an environment, Banks and Insurance Companies have begun to transform themselves into financial conglomerates which offer the widest possible array of services to individual and institutional investors A commonly used name for this kind of integrated financial activity is Bancassurance, and in one form or another, Bancassurance has appeared in many industrialized countries and especially in Europe In 1995, a similar situation emerged in the United States The new Republican Congress made a sustained effort to allow banks to merge with security firms, although, at this time, the question of merges between Banks and Insurance companies is far from settled

2.2 Models of Bancassurance :

 Structural Classification:

Bancassurance can take several forms

Cross - sectoral investing: The simplest forms, whereby banks expand their operations

to offer new lines of insurance to customers, or insurance company introduce some types

of deposit and savings account to their policy holders Because governmental regulations

in some countries still prohibit banking and insurance activities from being carried out at one corporation source, this kind of investing must be effect through linkages among

companies Often, banks conduct this kind of investing through the creation of an insurance subsidiary, and insurance firms follow a similar tactic

Interpenetration of markets: which may happen because the merger of a bank and an

insurance company Interpenetration can also occur if a bank or insurance company acquires the majority of (or a significantly large minority of) the equity shares in a form

of the other industry

Cooperative arrangement: between a bank and an insurance company whereby each

remains independently Example of this kinds included Joint ventures and special distribution agreements that call for a bank to market one insurance firm’s product line and for insurance firm to sell the bank’s service through it’s retails outlets

 Product based Classifications:

Stand-alone Insurance Products: In this case Bancassurance involves marketing of the

insurance products through either referral arrangement1 or corporate agency without mixing the insurance products with any of the banks’ own products and services Insurance is sold as one more item in the menu of products offered to the bank’s customer However, the products of banks and insurance will have their respective brands too

Blend of Insurance with Bank Products: This method aims at blending of insurance

products as a ‘value addition’ while promoting the bank’s own products Thus, banks could sell the insurance products without any additional efforts In most times, giving insurance cover at a nominal premium and fee or sometimes without explicit premium does act as an added attraction to sell the bank’s own products, e.g., credit card, housing loans, education loans, etc

1

Bank Referral: the banks do not issue the policies; they only give the database to the insurance companies The companies issue the policies and pay the commission to them

2.3 Relation between Bancassurance and Commercial Banking:2

Several important and global economic forces explain the phenomenon of Bancassurance3 Extensive deregulation of the many financial industry sectors has allowed the large financial firms to diversify their product lines Deregulation improved competition and shrank the profit margins of many financial institutions, driving them to raise their market share and diversify their types of services With the increased personal saving from the economics boom of the 21st centuries, inventors were looking for higher rates of return on their funds than bank had traditionally paid

Thus, money flowed from the liquid and short-term accounts at banks into other financial institutions An example is France, where the percentage of individual wealth in bank accounts fell from almost 59% in 1960s, to 15% in 1990s, while wealth invested in insurance assets raised form 10% to 45% of household financial assets

Finally, the demand for insurance products with investment features rose dramatically in the last decade However, insurance buyers were also looking for a wider range of financial services than the firms in this industry were used to providing

In response to this factors, Bank and insurance companies search for synergistic combinations (that is combinations of assets which are more valuable than the sum of the individual assets used independently) of financial activities that could cut cost, raised market share, or both What they developed was a insurance and banking products One place where Bancassurance has been quite successful in France: in 1994, 56% of the life insurance policies were sold through banks

2.4 The advantages & disadvantages of the Bancassurance:

2.4.1 The advantages of Bancassurance Models:

 To the Insurance company

- Lower Distribution Cost

- Customer database

- Diversify the Distribution Channel

- Increase the business profit (high revenue, low distribution cost)

- Cooperate with Bank to improve the Brand name

 To the Bank

- Commission

- Customer database (from insurance company)

- Diversify the products

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

- Cooperate with Insurance company to improve Brand name

 To the Customer

- Low Price of Insurance Products (due to mass production & low distribution cost)

- More choice of buying insurance

- Obtains many kind of products at the same place

- More benefits: convenient premium paid, fast and simple claim procedures

- More safety to buy via bank (bank have to consider the prestige Insurance company to restore their Brand name) – double protection

Vietnam Commercial Bank can deploy the insurance distribution channel based on the number of advantages as below:

- Vietnam Commercial Bank, especially State Owned Commercial Bank have a wide range of Branches ( Level 1, level 2, level 3…) all over the country in order to meet the demand of the customers and assist to customer in term of premium collection, claim procedures…

- The higher customer service orient has been increased day by day, customers require buying many kinds of product at the same place and financial institution is not an exception

- The Banks have a wide of customer databases and goodwill relationship with the customers, which is one of the most advantages for the bank to enhance Bancassurance

- Most of the profit ratio of the Bank via Bancassurance on the leading market is account for more than 50% while Vietnam now is only 1.5%

- The Bank and the insurers can have a chance to expand the cross-sale products and vice versa

- The development of the IT, technologies of the Bank and the Insurance Company can meet the demand when we expand the Bancassurance systems

2.4.2 The disadvantages of Bancassurance Models:

However, when we enhance the Bancassurance market, we have to face with many difficulties as well:

- A small ratio of customer can acknowledge that they can buy insurance product at a Bank As statistic of a survey in US_a country have a strong developed Bancassurance market_ announced that only 39% of the interviewees tell that they can buy insurance products via Banking Channels

- In the 02 kinds of the Insurance, Bancassurance mostly expand the products on the Life Insurance products, not non-life, however, life insurance market still a very small market in Vietnam now

- The limitation in Insurance selling skill of Banking officer that will lead to an obstacles for distributing the Bancassurance products

2.5 Implementation of Bancassurance system in the world:4

 Global scenario:

4

Analysis of Bancassurance and its status around the world

Marjorie Chevalier, Carole Launay and Bérangère Mainguy

Bancassurance has grown at different shapes and forms in different countries depending

on the demography, economic and legislations in that country During the last two decades, Bancassurance has taken deep roots in various countries, especially in Europe

 The leading markets

France is one of the countries where the breakthrough of Bancassurance has been spectacular Today, French Bancassurance Operators are doing better than insurance companies on individual risk

Today, Bancassurance operators are amongst the top 10 insurance companies in Spain, and Bancassurance accounts for 74% of new contracts, 50% of which go to local savings banks

Despite its small size, Portugal is highly attractive to Bancassurance Since 1995, the insurance sector (life or property) has been one of the fastest growing markets in Europe And there is still great potential for further development

In Italy Bancassurance has grown considerably in recent years, almost entirely driven by life insurance, and currently 70% of new life policies are sold in bank branches

Belgium: a pioneer of Bancassurance

However, it was above all in 1992, following a change in the law, that Bancassurance

In 1994, the banking sector distributed just 20% of life insurance In 2004, more than 63%

of life insurance went through the banks and tend to raise the market share of Bancassurance from 8% to 20% in the next few years

In Bancassurance market, Ireland has been a dramatic and unambiguous success over the past 15 years The two major banks in Ireland which control over 70% of the banking

customer base between them (Allied Irish Bank and Bank of Ireland), each decided in the early to mid 90s to develop a Bancassurance subsidiary (Ark Life and Bank of Ireland Life respectively)

In brief, on average across all European countries, the traditional insurance networks now account for less than 30% of contracts For their part, the direct sales networks now control only 10% of the market One thing is clear today, whatever the country: the Bancassurance landscape is changing fast

 The new Bancassurance markets

In Argentina, big international banks (Citigroup, HSBC, BBVA and Banco Santander) have acquired stakes in Argentinean life insurance companies, and sales of life insurance products by the banks are starting to grow substantially However, the traditional distribution channels continue to dominate the market

In Chile, banks have been legally allowed to sell life insurance products since 1997 However, an authorized intermediary must be present for every insurance sale in a bank

Between 1999 and 2003, Bancassurance enjoyed an astonishing average annual growth rate of 29%, reaching 10.6% of total insurance premiums (life + property) in 2003

In Mexico, banks played an important role in the establishment of pension funds after the

1997 reform Since then, many foreign insurance companies have gone into partnership with local banks In 2001, between 10 and 15% of total life and annuity premiums came from bank sales

 A promising start

The Asian financial crisis of 1997 became a driving force in the banking industry’s diversification Chiefly since 2000, Bancassurance has consequently been at the heart of many discussions in Asia Financial deregulation facilitated the introduction of Bancassurance, notably with the penetration of foreign insurance companies seeking to establish agreements with local banks

It was in Singapore that Asia's first big experiment in Bancassurance took place, following Development Bank of Singapore’s sale of its insurance operations to Aviva In return for selling off its insurance arm, DBS became the exclusive distributor of insurance policies

Depending on the country’s legislative framework, the bank may simply act as a distributor for the insurance companies It is therefore difficult to discern a “typical” Bancassurance pattern more open market They remain the dominant channel for the distribution of both life and non-life insurance products in Asia, and they are afraid that the growth of Bancassurance will result in waves of redundancies

Nonetheless, we have observed that the common factor for all the Asian countries is, without any doubt, an extremely strong interest in Bancassurance, and penetration rates for this distribution channel should increase substantially in coming years

 Markets where Bancassurance is slow to develop

The Anglo-Saxon, Germanic or Scandinavian markets, the rise of Bancassurance are so far less apparent, and the insurance and brokerage networks still dominate Gradually, however, the status of life insurance distribution is changing

Bancassurance has seen tremendous acceptance and growth across nations Although it enjoys a penetration rate in excess of 50% in France, Spain, Italy and Belgium, other countries have chosen for more traditional networks

2.6 Studies relating to Bancassurance :

Does Bancassurance Add Value to Banks? Evidence from Mergers and Acquisitions between European Banks and Insurance Companies

Zhian Chen, Donghui Li, Fariborz Moshirian, Jianzhong Tan

School of Banking & Finance

The University of New South Wales, NSW 2052 Sydney

Expansion, consolidation of Bancassurance in the 21st century,

Chen, Z., Li, D., Liao, L., Moshirian, F., Szablocs, C.,

Journal of International Financial Markets, Institutions & Money (2008)

2.7 Conclusion:

There is also some press on Bancassurance of Vietnam However, these articles and research just simply have an overall look at Bancassurance systems in Asia in general It can be argued that the lack of quantitative studies results from a lack of available data regarding Bancassurance operations in Vietnam and the way to apply this Model in Vietnam Market to bring up a best result and the disclosure requirements applying to a company

This study is the first comprehensive study of overview look at Bancassurance in Vietnam that is able to fill a gap in the existing literature in this area, as it overcomes some of the shortage of data for Bancassurance operations in Vietnam and hence discusses and measures the determinants of Bancassurance by using a sample of company from Vietnam “Chartis Vietnam”

This paper reconciles existing literature on Bancassurance with studies in the area of life insurance and banking, and provides a more complete picture of the main factors that determine the overall success and popularity of Bancassurance operations around the world in both developed and developing countries

non-The results of this study are important to policymakers and regulators in particular, since

it indicates that they should focus their attention on further financial deregulation to encourage greater market accessibility since it is found that targeting this area has potential benefits to the Bancassurance sector

For the Insurance Company, especially Chartis Company, this thesis try to help them more clearly about the benefits of Bancassurance bring up the successful and profitable factors to the company On the other hands, it also makes a practical contribution to Bancassurance systems in Vietnam

For bank managers, this study indicates that they should seriously consider expansion into Bancassurance operations because of the benefits provided through diversification of risk, reduction in company fixed costs, increase in fee-based revenues, and improvement in overall company competitiveness

CHAPTER 3: METHODOLOGY OF THE STUDY

3.1 Introduction

As with any research, it is necessary to plan and design how the research working will be completed This chapter obtains the key steps in initiating, planning, designing, and conducting an activity program for research During this process, the chapter also focuses the methods of data analysis, SWOT analysis, Porter Model Analysis From there, the chapter will be looking at aspects, and where appropriate for implementing and follow-up action research objectives

3.2 Purpose of this survey:

- Evaluate the Bancassurance development situation of Vietnam in general,

- Capture customers’ expectations and perceptions about Bancassurance product

- Recommend a strategy about Bancassurance for to policy makers and market regulators and Chartis Company to approach the Vietnam inhabitants

3.3 Research strategy

- Analysis the current statistic of Vietnam Insurance Associate to evaluate the current situation of Vietnam Insurance market

- Analysis the Balance Sheet and Income statement of Chartis Vietnam in Year 2007,

2008, and 2009 compared with the top 03 Insurance companies in Vietnam: Bao Minh, Bao Viet, and PVI

- Using Diamond Model of Michael Porter, analysis 04 competitive factors of Vietnam Bancassurance: (1) Competition in Vietnam Insurance Market; (2) Demand condition; (3) Factors Condition; (4) related, supporting Conditions

- Using SWOT to analysis current Bancassurance situation of Vietnam and Chartis to give out some recommendations to policy makers and market regulators and Chartis

Company for improving the situation

CHAPTER 4: BANCASSURANCE OUTLOOK IN VIETNAM

4.1 Current situation of Vietnam Non-life Insurance Market:

With the role as an important tool for stabilizing the economy, people’s lives and developing the economy through activities of risk diminishing in all aspects of society; mobilizing capital for development investment, and as a vital industry, Vietnam insurance

is also in renewal process, integrates into the country’s trend

4.1.1 Legal:

Before 1993, in Vietnam insurance Market, there was only Vietnam Corporation (established in 1964) operating in non-life insurance industry, being monopoly and subsidized by Government So, the role of insurance in society and economy was still restricted

In order to renovate and develop insurance business activities toward the State governed market economy, in June 1992 Ministry of Finance separated management and business function of Vietnam Insurance Corporation and established the Insurance Division under Banking and Finance Department to counsel the Ministry in managing insurance business activities

In December 1993, the Government issued Decree 100/CP on insurance business, created legal environment, attracted foreign investment, developed the insurance market, initially met demands of integration and improved the State management capacity on insurance business

Under influences of the Decree 100/CP, up to the end of 2000, Vietnam insurance industry has developed with the presences of 18 insurance companies belonging to various economic sectors (the State owned, Joint Stock, Joint Venture, Fully foreign

company) and operating in all aspects; Direct insurance, Reinsurance, Life Insurance and Insurance Brokerage This distribution system was initially established with one insurance broker and more than 40,000 agents Besides, there are 40 foreign insurance Companies and Brokers opening their Representative Offices in Vietnam The total premium revenue

of whole market is VND 3,051 billion, accounts for 0.68% of GDP, in which non-life insurance’s premium gains VND 1,766 billion, accounts for 0.39% of GDP

The rapid development of insurance market requires the improvement of Decree 100/CP into Law In Dec 2000, Vietnam National Assembly approved the Insurance Business Law came into effect to effect on 1st April 2001

Base on Insurance Business Law the legal framework for the operation of the insurance market has been set out and gradually completed:

- The Insurance Business Law’s guiding documents: Decree 42 and 43; Circular 71 and

72 followed by Circular 98 and 99 (2004)

- Strategy for insurance market development 2001-2010 approved by the Government

in Decision No 175/QD-TTG (2003); Decision 153/BTC of Ministry of Finance issuing the system of supervising indications for insurance companies (2004)

- Decree 118/CP of the Government and Guiding Circular 35/BTC of Ministry of Finance providing administrative punishment in insurance business operation (2004)

- Decision 23/BTC of Ministry of Finance providing terms and tariffs for Motor third party liability (2004)

- Circular No.98 and 99 on the implementation guidance of Governmental Decrees No.42 and No.43 (2004)

- Inter-ministerial Circular of ministry of Finance and Ministry of Public Security on implementation guidance of Governmental Decree No.130 and No.115 ( on Fire insurance and insurance of civil liabilities of automobile and motorbike owners)

- Circular No.111 stipulating guidance on value added tax (VAT), insurance companies’ profit (income from insurance business operation)(2005)

- Decree 45/2007/NĐ-CP in 2007 providing guidance details for some terms in Insurance Law

- Decree 46/2007/NĐ-CP in 2007 stipulate finance control for insurance companies and insurance brokers

- Circular No.155 (revised) and 156 (revised) on the implementation guidance of Governmental Decrees No.45 and No.46 (2007)

- Circular No.86 (revised of Circular No.155 and No.156) on the implementation guidance of Governmental (2009)

Besides improving legal frame, Insurance Department of Ministry of Finance was established in Aug 2003 in order to implement the state’s managing and supervising function for insurance business operation Before, it is only a division in the Department

of Finance Institute and Banking

It can be said that after over 20 years pursuing reform and open door policy, accelerating international integration, attracting foreign direct investment capital and mobilizing internal resources, Vietnam Insurance Industry has gained significant achievements on quality and quantity, especially the 2007-2009 period in particular have been rapid and strong development

4.1.2 Market Structure of non-life insurance

Table 1: Current non-life insurance companies in Vietnam

Seq Company Nam established in Type Registered Capital Local Company: 16 companies

8 AAA 2005 Joint Stock 380 billion VND

Foreign Company: 11Companies

Source: Vietnam Association of Insurers

Table 2: Structure of non-life insurance sectors:

Source: Vietnam Association of Insurers

Up to now, there have been 27 non-life insurance companies joined Vietnam Insurance Market, including 16 Local companies and 11 Foreign Company with the market occupied by 1 Stated Owned Companies, 15 Joined Stock Companies, 4 join Venture companies and 7 fully Foreign invested companies The non-life insurance premium have been increased, with the idea of establish more Insurance Company with variety kind of

company, claims that the requirement for Insurance in Vietnam have been rapidly developed

At present, there’s only 01 Stated Owned Companies: BIC And with the above variety and the appearance of Fully Foreign Invested Companies make the Vietnam non-life Insurance market to go into a competition Bao Viet, Bao Minh, PJICO have around 55-

65 branches, the others Vietnam companies have 10-30 branches, and Foreign Insurance Companies operating in HCM and Hanoi, Da Nang Up to 2008, there are more than 350 Branches, subsidiary Companies of non-life Insurance Companies doing business in Vietnam Especially, there are some subsidiary Companies have the turnover from 200billions to 450 billions – equivalent to the sales of a medium-sized insurance company

on the market

From the period 2004-2009 with the double size of non-life insurance Companies have been shown a potential non-life insurance market of Vietnam in a near future from the period of 2010 -2020 And the above development market has clearly reflected a fundamental shift from a market dominated by stated monopoly to a multi-section market covering all areas of non-life insurance business This is a result of the Government’s Orientation which has been set out in the Development Strategy for Vietnam Insurance Industry up to 2010; restructuring and strengthening financial capacity for State-Owned companies; developing insurance activities and continuing the process of opening market

in conformity with the National Integration Process

4.1.3 Market size of non-life Insurance Market

Table 3: Growth Rate of Insurance Premium Market Share:

In the past 03 years from 2007 to 2009, the insurance market has gained higher growth rate Although the rate in 2009 have a lightly decreased, the total Direct Premium still increased from 10 thousand billion VND (2008) to 13 thousand billion VND (2009) and two times higher in comparison with that in 2007 (8 thousand billion)

The non-life insurance market still mainly occupied by Vietnam Companies with the ratio

of 94% in 2007 and 92% in 2009 and the non-life sectors of Foreign Companies have grammatically increased the market share from 487 million VND in 2007 compare with 1,1 billion VND in 2009, equivalent to 6%(2007) – 8%(2009)

Non-life insurance has greatly benefited from the high growth of economic activities, especially the increase capital resource for development at an average rate of 20% - 23% per year However, one thing should be emphasized which is the continuous efforts by the insurance companies themselves in wakening all economic sectors’ awareness of paying attention to insurance, improving quality of services and upgrading management technology

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

Source: Vietnam Association of Insurers

In 2009, non-life Gross written insurance Premium were 13,603 VND billion with an increase of 63% to 2007 Domestic insurer accounted for more than 90% Market Share, the remaining belonged to Foreign Investment Insurers

In Vietnam Sector Insurance Company, the Market was still highly concentrated to big insurer such as: Bao Viet (29%), Bao Minh (15%), PVI (22%) and PJCO (10%) in Year

2009

In Foreign Sector Insurance Company, the market also divided more dispersal with 17% market share for VIA, 24% for ABIC, 15% for Liberty and 11% for Chartis Vietnam

Figure 1: Market share of foreign non-life Direct Premium By Company

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

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

Unit: 1,000,000VND

Source: Vietnam Association of Insurers

In 2009, the global recession storm totally affected Vietnam socio-economy Most

enterprises had to cut down the output, curtail exportation, reduce the work force or try to

maintain the staff but decrease man-hour and workday every week Due to that

circumstance, it was difficult for them to buy different for them to buy different kinds of

insurance for enterprises as well as for employee, such as property insurance, liability

insurance, business interrupt insurance and insurance for employee Among the

enterprises with high-valued property being in such hard situation were shipbuilding

yards, companies trading marine and inland water transportation, aviation, coal and

mineral, oil and gas, steel and cement To confront the recession, the government put

forward some demand stimulating packages, including supporting interest rate at 4%/year,

stretching the time to pay personal income tax and enterprise income tax The solution

above brought about good effect as Vietnam was one of few country gained the grow rate

of 3.1%

The total collected premium of non-life insurance in 2009 was 13,643 Billion VND

increased 63% against the period of 2007 In 2008, Motor Vehicles Insurance accounted

for the highest portion of 29 %, followed by the property and Casualty Insurance with 19%, Personal Accident and Health insurance (15%), Insurance of good transport; Fire and explosion Insurance ranged around 9%; and others kinds of Lines is still accounted for a very low shares

Figure 3: Market share of non-life Direct Premium by Lines from 2007 to 2009

1,203,156 712,092

321,448

2,550,406 1,022,233

19,004

809,030 175,036

833 649

1,546,107

1,597,384 972,495

569,348

3,182,808 1,029,769

24,535

1,266,289 182,861

1,683 28,532

2,024,544

1,960,336 953,095

435,192

4,375,229 1,164,542

25,303

1,544,809 314,291

1,701 7,590

2,861,873.00

Personal Accident and Health Insurance

Insurance of good transported

Aviation Insurance Motor Vehicle Insurance

Fire, Explorsion Insurance

Business Interruption Insurance

Hull and P&I Insurance

Public liability Insurance

Agricultural Insurance

Credit and Financial Risk Insurance

Property & Casualty Insurance

2007 2008 2009

Figure 4: Market share of non-life Direct Premium by Lines from in Year 2007

2007

Personal Accident and Health Insurance 14%

Insurance of good transported

9%

Aviation Insurance 4%

Motor Vehicle Insurance 31%

Fire, Explorsion Insurance

Figure 6: Market share of non-life Direct Premium by Lines from in Year 2009

Insurance of good transported

7%

Personal Accident and Health Insurance 14%

4.1.5 Product Distribution Systems:

Such premium revenues are gained because of the effective contribution of insurance broker and agents

At the present, there are 10 insurance broker operating in the market, in which 03 fully foreign invested companies mainly operate in non-life insurance (Aon, Grass Savoye, Marsh) and deploy all types of insurance products provided by direct insurers Total non-life insurance premiums implemented through brokers gained 2.7 thousand billion VND occupying around 20% of non-life premium in 2009

By the end of 2009, there have been 180,000 insurance agents working in insurance market, in which non-life insurance agents are 60,000 people, occupying 30% of total employees in this industry From 2006, the presence of insurance distribution systems, through Commercial Bank, has made the non-life insurance market more competitive

4.2 Vietnam Bancassurance Market Business:

In this distribution system, Bancassurance product has been designed and provided in the market; For commercial risk, the bank will introduce the products to clients and vice versa, introducing clients who have demands of insurance to the insurers Even though it

is infant, this distribution channels has really contributed into business results of insurance companies, especially for Joint Venture between insurance company and commercial bank

Presently, in Vietnam non-life insurance market, Bancassurance exist in 02 types:

Kind 1: Establish an insurance company base on join venture between an insurance company & a Commercial bank

- IAI : Incombank & Asia Insurance company

- BIC: Insurance company owned by BIDV on “BIC Visa Gold”

- MIC: joint Stock insurance company with capital contribution of Military bank

Kind 2: Bancassurance service by cooperation between an insurance company & Commercial Bank

- Cooperation between Menulife with ACB on Peace in mind ( An Phuc Gia Products)

- Member of Abacus & Amadeus – Call center (CS)