Competitiveness of Vietnamese non-life insurance companies

Thus, the competitiveness of an enterprise can be understood as the ability to compete to offset costs, maintain profits and is measured by the market share of products and services in the domestic and international competitive environment.

The basis of competitiveness is often considered based on the profit margin of the enterprise. An enterprise has competitive capacity when its profit margin is higher than the average of the industry or competitors. To increase the profit margin or to have a profit margin higher than the average of the industry or competitors, one of the following conditions must be met:

- The selling price of a company's products on the market must be higher than that of its competitors, but the cost must be equivalent to the industry average.

- The cost per unit of product is lower than that of competitors while the price is equivalent to the industry average.

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- The cost of a unit of product is lower and the unit price of the product is higher than the industry average.

Thus, to achieve competitive advantage, a business must have lower unit product costs than its competitors, or must differentiate its products from those of its competitors, or must do both.

There are four basic factors that create a business's competitiveness, representing the basic ways to reduce costs and create product differentiation that any business in any industry can apply, specifically:

The first factor is efficiency : Efficiency is often measured by the number of inputs (costs) required to produce a unit of output (product, revenue, profit). The more efficient a business is, the lower the input costs to produce a unit of output, and thus the more competitive the business will be based on costs.

The second factor is quality : Product quality is the characteristics of the product that are expressed in the process of forming and using that product. Quality is associated with the ability to satisfy the needs that have been defined for the product. According to ISO 9000, "Quality is the set of characteristics of an entity that give that entity the ability to satisfy stated or latent needs." The supplier must optimize product quality, not to be "lower" than the needs but also not to be "too high" or "too high" than necessary.

necessary to avoid affecting the price. High quality products help businesses increase their reputation, thereby increasing the selling price.

The third factor is innovation : Innovation includes the improvement of products, technology, management systems, organizational structures... of enterprises. In which, technological innovation is considered the main source of competitiveness, it helps enterprises differentiate their products from competitors or reduce production costs. Therefore, enterprises often produce products in series, do not maintain a product for a long time or in large quantities. Typical examples are car models, televisions, radios, computers...

The fourth factor is to promptly grasp customer needs : To meet customer needs, businesses need to provide the items they need and at the time they want them.

Improving efficiency, quality and innovation is ultimately about meeting the very diverse needs of customers.

There is an organic relationship between the three levels of competitiveness mentioned above, creating conditions for each other, regulating each other and depending on each other. An economy with high national competitiveness requires many competitive enterprises. And conversely, enterprises can only compete well in a favorable national economy, with clear macroeconomic policies, a stable investment environment and guaranteed infrastructure...

On the other hand, being proactive and agile in business management is also an important factor, because in the same business environment, there are successful businesses but also failed businesses.

Besides, enterprises can only be highly competitive when their products are highly competitive compared to competitors and are accepted by society. The competitiveness of products and services, in addition to their intrinsic quality, also depends largely on the reputation and prestige of the enterprise.

Therefore, improving the competitiveness of products and services is the basis and condition for improving the competitiveness of enterprises and the national economy. Currently, our country is moving deeper into the integration process, so the requirement to improve competitiveness at all three levels: national, enterprise and product and service is becoming increasingly urgent. In which, the proactive and creative nature of enterprises plays a decisive role.

1.2. Characteristics of business activities and factors affecting the competitiveness of Vietnamese non-life insurance enterprises

1.2.1. Concept and classification of non-life insurance business

1.2.1.1. Concept

Insurance is divided into two large groups: life insurance and non-life insurance. In which:

- Life insurance is a type of insurance in which the insured events are related to human life and life, often long-term in nature for many years and associated with savings.

- Non-life insurance includes the remaining types of insurance, it is used as a general concept that includes all types of damage insurance (property insurance, civil liability insurance) and human insurance services not belonging to life insurance (such as accident insurance, illness, sickness, hospitalization and surgery benefits insurance...). The main purpose of non-life insurance is to compensate the insured for the consequences of a random event causing damage to their property, interests and people. According to Article 3, Chapter 1, the Law on Insurance Business of Vietnam explains the term non-life insurance as follows: " Non-life insurance is a type of property insurance, civil liability and other insurance services not belonging to life insurance ".

1.2.1.2. Classification of non-life insurance business

In the world market as well as in Vietnam today, there are many different businesses (insurance products). Depending on different classification criteria, insurance businesses can be divided into the following basic types:

* By customer group: includes

- Group of products for individuals

- Group of products for organizations

Classification according to this criterion helps businesses manage and design suitable products, meeting the individual needs of individuals as well as serving the work needs of organizations.

* By product type: includes:

- Individual insurance product groups.

- Comprehensive insurance product group.

Classifying according to this criterion will help businesses easily manage products, and at the same time have plans to combine individual products to create comprehensive insurance products.

* By product distribution method: including:

- Product groups distributed through media distribution channels.

- Product group distributed through "direct response" channel.

Classification according to this criterion will help insurance companies manage products according to distribution channels and have strategies to design suitable products to offer through those distribution channels.

* According to insurance objects: According to this criterion, insurance operations are divided into three groups:

- Property Insurance (PIA)

- Civil liability insurance (CI).

- Non-life human insurance (BHCN).

+ Property insurance : This is a type of insurance in which the insured object is the property (fixed or movable) of the insured person.

For example: Insurance for physical damage to motor vehicles, insurance for goods of shippers in import-export goods insurance, insurance for property of homeowners in theft insurance.

The insured value is the actual value of the insured property, it is an important basis for calculating the insurance premium and the limit of insurance compensation payment. This means that the amount of compensation that the insured party receives in any case must not exceed the actual damage in the insured incident.

For example: A motorbike owner buys insurance for his entire motorbike worth 20 million VND. In an accident, the motorbike is damaged with a value of 8 million VND. Thus, the compensation that the motorbike owner receives in all cases is only 8 million VND.

+ Civil liability insurance : According to the Civil Law, the civil liability of a subject (such as a property owner, business owner...) is understood as the responsibility to compensate for damages to people, property... caused to others due to the fault of that owner.

For example: Civil liability insurance of motor vehicle owners, employers; Product liability insurance; Public liability insurance...

Unlike property insurance and personal insurance, the insured object of this type of contract is an abstract concept when the contract is signed. However, the liability of compensation of insurance is still based on actual damages occurring to third parties.

+ Non-life human insurance : is a type of insurance whose insured objects are life, health status or events related to and affecting human life. But different from life human insurance in that: Non-life human insurance is a type of insurance only related to human risks such as: accidents, illness, loss of working capacity and even death. The characteristic of this type is that it is not related to human life expectancy. For example: 24/24 accident insurance, passenger accident insurance, tourist insurance...

When paying insurance money, the "contract principle" is mainly applied when paying insurance money. That is, in principle, the amount of insurance payment will be based on the subjective provisions of the contract and the amount of insurance agreed upon when signing the contract, not based on actual damage. Because human life is priceless, it cannot be determined by a certain amount of money. Therefore, payment of insurance money in human insurance business is only for financial assistance when unfortunately encountering risks. However, it can be applied in combination with the compensation principle when paying for medical expenses arising within the scope of insurance of human insurance contracts.

1.2.2. Characteristics of non-life insurance

1.2.2.1. Insurance purpose

Insurance is known first of all as an effective method of risk transfer and the purpose of non-life insurance transactions clearly shows the meaning of that method. The legitimate reason for entering into non-life insurance contracts is the transfer of possible financial losses from the insurance buyer to the insurance company. When a loss occurs, the non-life insurance company thoroughly determines the limits and compensation responsibilities stipulated in the insurance contract signed with the insured, thereby helping the insured party overcome the material and financial consequences.

One reason why many life insurance contracts are signed is also quite special, that is

To be:

+ In order to comply with the provisions of the law on compulsory purchase of insurance for types of insurance such as: for individuals, organizations and companies with assets at risk of fire and explosion, it is compulsory to purchase Fire and Explosion Insurance; for construction projects, it is compulsory for contractors or project owners to purchase Construction and Installation Insurance. In addition, there is Civil Liability Insurance for third parties for those who use and operate motorbikes, motorbikes, cars, etc.

+ In import-export business activities, to comply with international customs and practices, it is mandatory to have cargo insurance contracts.

The above rules and practices never apply to life insurance. Therefore, the very specific reasons for the purpose of insurance can be considered the first characteristic of life insurance.

1.2.2.2. The difference in “value” between non-life insurance services

Faced with the diversity of insurance objects, insurance risks, etc., life insurers are forced to take advantage of every possible opportunity, fully exploit every opportunity to implement the law of large numbers to minimize their risks. Therefore, whether it is a proposal for a modest insurance contract with an insurance amount of several tens of millions of VND or large insurance contracts with an insurance amount of up to several hundred billion VND. For that reason, the form of co-insurance and especially reinsurance is used as one of the effective tools in exploiting insurance contracts. If reinsurance encounters many difficulties from having to meet the requirements of the investment environment to be able to ensure technical investment interest rates, in life insurance, this thorny issue is not the main issue affecting the decision to accept or transfer the insurance contract between the original insurance company and the reinsurance company; but mainly depends on the insured risk and the terms and conditions agreed in the original contract.

1.2.2.3. Level of binding commitments in insurance contracts

The insurance contract includes the commitments agreed between the insurance buyer and the insurance company for a certain period of time. Cases of cancellation or suspension of implementation of commitments must comply with the law on termination of insurance contracts. In fact, this has been clearly stipulated in the " Insurance Business Law ". For both the buyer and the seller of insurance, the binding commitment must be clearly defined in the insurance contract. Accordingly, the buyer and the seller of insurance are obliged to implement the commitments stipulated in the insurance contract until the end of the insurance term, except for

except for some reason the insurance contract must be terminated before the term as prescribed by law. This is very different from life insurance. In life insurance, the insurance buyer has the right to terminate the contract at any time without having to give a reason.

The legal consequences that the parties must bear when terminating the contract before the end of the insurance period in non-life insurance are very diverse. Notably, if in non-life insurance, the insurer is not allowed to sue the insurance buyer to pay the insurance premium, then in non-life insurance, it is allowed and necessary to do in certain cases.

1.2.2.4. Applying division techniques

The term of non-life insurance contracts is often short and there are clear differences between insurance businesses. For example: for motor vehicle insurance, the term of insurance is usually one year, while there are cargo insurance contracts that only last a few months, and even the term of passenger accident insurance can be only a few hours. However, the term of insurance contracts is usually one year. It is worth noting that: the liability for compensation (or payment of insurance money) of the insurance company can still arise after the end of the insurance term. Some civil liability insurance businesses are still known as "Long tail business", meaning that the liability for compensation can last for up to ten years later. Meanwhile, the insurance premium can be paid in full immediately upon signing the insurance contract or in a few payment periods during the insurance term. Therefore, the financial management of revenue and expenditure of businesses must apply the division technique. The basic requirement when applying the division technique is: determining the business results at the time of closing the accounting books (December 31) must take into account business reserves.

The basic types of business reserves of DNBHPNT include: unearned premium reserve, compensation reserve and large fluctuation reserve. Moreover, the division technique also requires the methods of setting up must be suitable to the characteristics of each type of insurance business. For example, for setting up unearned premium reserve, if it is motor vehicle insurance with the insurance term being mostly one year, the 1/8 method can be used, but for cargo insurance, the 1/24 or 1/365 method must be used because the term of the insurance contracts is short.

1.2.2.5. Insured objects and basis for calculating insured amount

Unlike life insurance, the insured object in life insurance is usually the property of the insured. In life insurance, the insurance contract limit is unlimited because the insured object is a human being and the contract limit is usually chosen by the insurance buyer based on his/her own needs or the proposal of the insurance company. In life insurance, the insurance amount is mainly calculated based on the market value of the insured property at the time of signing the insurance contract.

1.2.2.6. Risk of profiteering

Another characteristic of non-life insurance is that the possibility of profiteering is very high. This depends on the ethics and honesty of the insurance buyer. Specifically: because the insured object is only property, the insured person can, for some reason, destroy his own property. For example: burning down his own house or factory and then claiming insurance money from the insurance company. The difficulty is that the obligation to prove whether the loss was accidental or intentional belongs to the insurance company. Therefore, one of the immutable rules in non-life insurance when concluding an insurance contract is the rule of "absolute honesty".

1.2.3. Basic activities of non-life insurance companies

Like all insurance companies, the insurance business activities of a non-life insurance company usually include the following contents:

1.2.3.1. Insurance and reinsurance business activities

* Insurance business activities : are the basic activities of insurance companies for the purpose of making profit. This is a continuous process from issuing applications to insurance participants, collecting insurance premiums, monitoring the implementation of insurance contracts to the stages of loss assessment and settlement of insurance compensation.

Insurance business must ensure the principle of "the majority compensates for the minority". According to that rule, insurance companies must attract many people to participate in a specific insurance business or product.

The process of implementing insurance business starts with the insurance company through the network of agents or exploitation staff offering insurance services to each customer in need. After the two parties agree on the basic conditions, the insurance contract is established.

Competitiveness of Vietnamese non-life insurance companies - 2

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