Develop bancassurance of insurance companies under vietnamese state commercial banks

Ministry of education and training National economics university __________________ DoAn thÞ thanh tAm DEVELOP BANCASSURANCE OF INSURANCE COMPANIES UNDER VIETNAMESE STATE COMMERCIAL BANKS Major: FINANCIAL BANKING Code: 62340201 Ph.d thesis summary Hµ Néi – 2014 Ministry of education and training National economics university __________________ Doan thÞ thanh tam DEVELOP BANCASSURANCE OF INSURANCE COMPANIES UNDER VIETNAMESE STATE COMMERCIAL BANKS Major: FINANCIAL BANKING Code: 62340201 Ph.d thesis of economics Science guide: 1. Doctor- Professor. Dinh van son 2 .Doctor. nguyen thi hai ®uong THE THESIS COMPLETED AT NATIONAL ECONOMICS UNIVERSITY Science guide: 1. Doctor- Professor.Dinh van son 2 .Doctor. nguyen thi hai ®uong GENERAL INTRODUCTION 1. OPENING a. Choosing subject reasons In Vietnam, Bancassurance is not a new concept but these associated activities are still in the initial steps for development at the present and in the future. Vietnamese State Commercial Banks develop bancassurance model which is suitable for the overall trend with many advantages in the market, brand, infrastructure and resource. However, the results of their operations themselves in bancassurance has not been effective such as the case study of Bao Ngan and VCLI; or their development is not accordance with their ability in fact due to their difficulties in exploiting market such as the case of BIC, ABIC. That’s why postgraduate researcher selected research subject: "Development of bancassurance activities of insurance companies under the Vietnamese Commercial State Banks." This is the necessary research from that researcher proposed the solutions to develop bancassurance activities of Insurance companies under the Vietnamese Commercial State Banks to best exploit their existing potential. b. Research purposes Research objectives set out for this subject is to evaluate the current status and development activities of bancasurance and clarify the factors affecting the development of bancassurance of the Insurance Companies under Vietnamese Commercial State Banks so as to propose appropriate development solutions. Specific objectives: - Formalize and clarify the fundamental theoretical issues about bancassurance and its activities. - Analyse the current situation of developing bancassurance activities, clarify the factors affecting its development of the Insurance Companies under the Vietnamese State Commercial Banks. - Propose solutions for Bancassurance development of the Insurance Companies under Vietnamese State Commercial Banks in the coming time. Research questions: To achieve the set objectives, the subject should answer the following research questions: - What are bancassurance and its activities? - How are bancasurance activities currently developed in every country? What can Vietnamese Insurance companies learn from the experienced bancasurance development activities in the world? - Why haven’t bancasurance activities of the Insurance Companies under the Vietnamese State Commercial Banks achieved as our expectation? - Which trend should the Insurance Companies under the Vietnamese State Commercial Banks follow to develop bancasurance activities? c. Object and scale of research Object of research: The object of this PhD thesis will focus on studies of developing bancassurance activities of the Insurance Companies under the Vietnamese State Commercial Banks. Scale of research: - Space: This PhD thesis focused on developing bancassurance activities of the Insurance Companies under the Vietnamese Commercial State Banks. - Time: This PhD thesis mainly reviewed and analysed bancassurance activities of the Insurance Companies under the Vietnamese State Commercial Banks during the period from 2007 to 2012. 2.Overview of Research There are many international studies on bancassurance in the regions, in many countries as well as of banks or financial corporations in the world. The study by Wong and Cheung (2002), and Syprus Violaris (2001), A. Karunagaran (2006), Clarence Wong, Mike Bamahan, Lucia Bevere (2007), Elisabeth Standler (2010), Steven I Davis (2007) for see overview of bancassurance in various insurance markets in the world related to the bancassurance model of banks and financial corporations, product development of bancassurance in the countries, the selection of the bancassurance partners and target market, develop effective distribution channel. These studies provided valuable experience for Vietnamese banks in developing bancassurance model. In Vietnam, the study of bancassurance is only at the graduate level. In theory, studies of the authors Do Minh Hoang (2009), Vo Quoc Dat (2009), Vietnam Pham Ha (2010), Nguyen Thi Giang (2011), Nguyen Thi Van (2011), Nguyen Thi Le Thuy (2011) are mainly referring to the general theory of bancasurance related to models, products and distribution channels. Those studies provide the general concept of bancasurance but they do not summarize research or develop a unified concept of bancasurance. Those studies remain a single analysis at a bancasurance of a bank, or as study of Pham Ha (2010) is the market assessment overview but it is not in detail and it has no assessment of the potential market. Based on the current research on bancassurance in Vietnam, there is a lot of space for postgraduate author to research involving model selection, product development, distribution channel development, etc. Postgraduate author selected to research is solving the problem that the previous studies which do not concern that is assessing comprehensively the development of bancassurance of the Insurance Companies under the Vietnamese State Commercial Banks regarding the bancassurance model selection, evaluating the overall product development and distribution channels of the Insurance Companies under the Vietnamese Commercial State Banks and assessing factors affecting this model at the present and in the future. 3. Rationale and scientific hypotheses Research Hypothesis of the research is that the development of bancassurance of the Insurance Companies under the Vietnamese State Commercial Banks is not really effective, the insurance companies only exploit a very small market share of the potential market at the banks. The cause of this problem is the factors that influence both inside and outside the insurance company. However, the insurance companies can fully improve their internal factors to develop bancassurance activities efficiently and exploit a possible maximum of its potential market. 4.Research methods 4.1. Research Design The research is an exploring study because bancassurance in Vietnam is a new formation and develops to meet the needs of society and the general trend of development of the banking and financial institutions. Research is done in the context of the development of bancassurance activities of Vietnamese State Commercial Banks occurring naturally and follows the development trend of the market in normal environment, its activities occur in a usual manner without any interference and impact from the study. 4.2. Information collection Data used for the study of thesis consists of primary and secondary data. 4.3. Information Analysis The main analytical information methods used are qualitative analysis, synthesis and comparison. On the basis of data collected from the information collection methods mentioned above, the authors analyzed and compared the information to get the overall picture on development status as well as bancassurance developing potential of the State Commercial Banks in Vietnam, focusing mainly on the development of model, product and distribution network. Besides the two methods of analysis mentioned above, quantitative analysis methods were used to analyze the information obtained from the sociology survey information for the purpose of retesting the results of qualitative analysis. Quantitative analysis of the study will be based on the analysis of discrete variables, so the author has used the non-parametric testing, correlation analysis with discrete variables and hierarchical regression models to confirm the comments related to bancassurance activities in the State commercial banks. 5. Research Results After completion, the thesis has achieved the following results: - Develop and introduce the formal concept of model bancassurance model and bancassurance distribution channel, systemize theoretical issues related to bancassurance including products, distribution channels, the impact factor, etc. - Determining causes of success or failure of the bancassurance in markets and banks, the insurance financial corporations. - Identify the key factors affecting the development of the bancassurance of the Vietnamese Commercial State Banks, leading to the reasons why the bancassurance has not fully exploited or exploited the existing potential ineffectively. - Assess accurate the potential market of Bancassurance of the Vietnamese Commercial State Banks. - Propose solutions for Bancassurance development towards overcoming the influenced factors of internal bancassurance and insurance banks linkage. 6. Structure of the thesis As for the structure, in addition to the introduction, conclusion and attacted statement data, the thesis is divided into three chapters: Chapter 1: General Theory of Bancassurance Chapter 2: Current status of the Bancassurance development of the Insurance Companies under Vietnamese State Commercial Banks Chapter 3: Solution for the development of Bancassurance development of the Insurance Companies under Vietnamese State Commercial Banks Chapter I: General Theory of Bancassurance 1.1. An overview of bancassurance 1.1.1Formation and development history of bancassurance 1.1.2. The concept and characteristics of bancassurance From the actual development of bancassurance in the market and studies related to the bancassurance of the specialists we can summarize the basic terminology termsrelated to bancassurance as follows: "Bancassurance is a combination of insurance and banking services to maximize the service and profit of the parties "; Bancassurane distribution channel is defined as " It is the distribution channel of insurance products through banks, distribution of insurance products to bank customers." In the insurance company, "bancassurance activities" as: "The company's efforts in developing insurance products, establish relationships with banks to develop effective distribution channels, and other activities aimed at achieving the highest results from bancassurance distribution channel ". Regardless of the level of development of bancassurance, bancassurance operation is always crucial factor. 1.1.3. Bancassurance models. On the basis of summarizing bancassurance activities in several countries, the researches classified three basic bancassurance models: distribution agreement model: dealer partners and develop more strategic alliances, joint venture integration model and the single ownership model. 1.2. Development of bancassurance activities in insurance companies 1.2.1. Bancassurance with the development of the insurance companies 1.2.2. Bancassurance products 1.2.2.1. Traditional insurance products 1.2.2.2. Insurance Integrated Products 1.2.2.3. Development of bancassurance products The insurance products developed to serve bancassurance activities include traditional products and integrated products (insurance products associated with the integration of banking products). The level of product development often depends on market demand, the capacity of insurers, socio- economic conditions. 1.2.3. Bancassurance distribution channel development Bancassurance distribution channel can be developed in many directions: Distributed in the transaction department, direct response distribution, online distribution (via the Internet). The insurance company (bancassurer) organizes distribution models in three basic models: matching model, expert model and financial planning model. 1.2.4. The indicator of the level of development of bancassurance activities of insurance companies 1.2.4.1. The absolute targets. These indicators include revenue from bancassurance fee, the number of bancassurance agents, bancassurance product number: the number of traditional products and the number of integrated products, commission fees bancassurrance channel. In life insurance could use additional criterias: the amount of insurance money, the insurance money due to new exploitations, the insurance money due to exploitations of new insurance revenue, maintenance contracts in effect, the number of new mining contracts. 1.2.4.2. The relative targets. These relative figures will be used for: revenue growth of operating bancassurance fee, proportion of total direct bancassurance revenue, the rate of successful exploitation of market potential 1.3. Factors affecting the development of bancassurance of insurance company 1.3.1. The objective factors Socio-economic condition, legal environment, spending cultural, competitors 1.3.2. The subjective factors Partners and level of commitment of the parties in integration, the bancasurance target market, product and technology, human resource quality. 1.4. Experience in developing activities bancassurrance 1.4.1. Development of bancassurance activities of several banks and financial insurance corporations Thesis researched experience in developing bancassurance of Allianz, Aviva, City Group Maybank, Wells Fargo. These are leading financial corporations in the world and have many years of experience in developing world- wide bancassurance in different markets. 1.4.2. Bancassurance developing experience for Vietnam Insurance Companies Based on the study of financial corporations in the development of bancassurance, the author found that the regulatory role of the legal regulations r is a premise for the development of bancassurance activities in each country. In order to development successfully, the insurance companies need to focus on several issues as follow: First, select suitable partners and bancassurance models. This factor can make a success of bancassurance but for many insurance companies this is the decisive factor to the failure due to inappropriate partners. Second, the choice of the market and target customer segments successful. Third, the development of diversified and proper products. Fourth, there is a need to focusing on developing the quality of network and distribution channels quality. Chapter II: Current status of Bancassurance development of the Insurance Companies under Vietnamese State Commercial Banks. 2.1. Overview of the Insurance Companies under Vietnamese State Commercial Banks 2.1.1. Insurance joint stock Corporation of Bank for Investment and Development of Vietnam. Insurance joint stock Corporation of Vietnamese Investment and Development Bank. (BIC) is the earliest bancassurance model in the bancassurance models of Vietnamese state commercial banks. BIC was formerly Vietnamese- Australian joint venture insurance company established on the basis of a joint venture between Bank for Investment and Development of Vietnam and QBE Insurance Group of Australia. In 2006, BIDV bought the shares of International Insurance Group QBE (Australia) in Vietnamese- Australian joint venture insurance company and officially went into operation with the company trading as Insurance joint stock Corporation of Vietnamese Bank for Investment and Development. (BIC). 2.1.2. Insurance Company of Vietnamese Agricultural and Rural Development Bank (ABIC) Insurance Company of Vietnamese Agricultural and Rural Development Bank (ABIC) established in 2006 is the bancassurance model developed by Vietnamese Agriculture and Rural Development Bank. ABIC can be classified into group of bancassurance single owned model with controlling shareholder is Vietnamese Bank for Agriculture and Rural Development, with 51% of the charter capital. This model allowed Agribank to offer customers many services as well as opportunities for ABIC to promote its active right in exploiting and developing customers market of Agribank 2.1.3. Insurance Company of Vietnamese Industrial and Commercial Bank (Bao Ngan). Insurance Company (Bao Ngan) is the bancassurance model developed by Vietnamese Industrial and Commercial Bank in the field of non-life insurance. Bao Ngan Bank is classified as single ownership model with legal form of a member Limited Insurance Company of Vietnamese Industrial and Commercial Bank owned by Vietinbank. Bao Ngan had formerly owned by Asia Insurance joint venture company - Industrial and Commercial Bank. In 2008, Vietnamese Industrial and Commercial Bank acquired the entire equity of the foreign partner in the joint venture company and the company officially moved into Insurance Company of Vietnamese Industrial and Commercial Bank (Bao Ngan) and had independent accounting 2.1.4. Vietin - Aviva Limited Life Insurance Company Vietin- Aviva Limited Life Insurance Company (VietinbankAviva) is licensed under the license No 64/GP-KHBH July 2011 as a joint venture between Vietinbank and Aviva Insurance Group, the biggest Britain insurance group. This is the bancassurance model established in the form of alliances strategy in the field of life insurance. 2.1.5. Vietcombank Cardif Limited Life Insurance Company (VCLI) is bancassurance model developed by Vietnamese Foreign Trade Bank (Vietcombank). VCLI is the life insurance company established in 10/2008 on the basis of strategic cooperative venture between Vietnamese Foreign Trade Bank (Vietcombank), South East Asia Bank (Seabank) and BNP Paribas Assurance (Cardif) Company – a life insurance company of European leading BNP Paribas financial group. 2.2. Reality bancassurance activities of the Insurance Companies under Vietnamese Commercial State Banks 2.2.1. Product development status 2.2.1.1. Product development at BIC The insurance products marketed by BIC include the traditional insurance products and integrated products. BIC Integrated Products are in association with each group of banking products. BIC - Bình An associated with the credit operation and is currently the leading bancassurance products, BIC- Bình An Comprehensive Security products associated with savings products, and BIC - Visa Gold associated with the card service. 2.2.1.2. Product Development at ABIC ABIC provides a full range of traditional insurance products available in non-life insurance market. Products integrating with existing products of ABIC bank is Credit Security for household customers and individuals having relation with deposit or mortgage loan at Agribank. This product is successfully developed by the ABIC because they are suitable for customers, simple and easy risk management leading to lower costs. 2.2.1.3. Product Development at Bao Ngan Bao Ngan only develops traditional insurance products similar to insurance products of other insurance companies in the market to serve customers of Vietinbank. 2.2.1.4. Product Development at VCLI and VietinAviva VCLI provide both savings products and protective products. However, the only product currently offered in the market is VCLI credit insurance products serving personal credit customers of Vietcombank and Seabank. Life insurance products developed by VietinAviva focus on two types of life insurance as saving