Perfecting Management Policy for Business Processes of Non-Life Insurance Companies

Steps to follow:

- The management agency establishes a team to develop a project, specific time frame and evaluate the costs incurred in combination with finding cooperation partners.

Participants include representatives of management agencies, insurance companies, insurance auditing companies, international consulting organizations (including model design consultants and model design evaluation consultants). In which, the management agency plays a leading role, consulting organizations, insurance companies, and auditing companies carry out technical issues.

- The project development team organizes research, selects formulas and models and sends them to insurance companies to conduct trial calculations (capital, operational reserves, solvency) and at the same time collects opinions from insurance companies and evaluations from independent consulting organizations other than the organization supporting the model development.

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- Synthesize the results and comments, and complete the model to make it more suitable. Continue to send DNBH to recalculate and get comments for the second time.

- Drafting regulations: In the initial stage, Vietnam should apply both minimum capital regulations and risk-based capital because there is not enough data, so the calculation level at this time is not really accurate with actual risks.

* Amend regulations on technical reserve provisions to ensure the liability of insurance companies for all business activities.

The regulation on the establishment of technical reserves in Clause 1, Article 96 of the Law on Insurance Business No. 24/2000/QH12 states that the establishment of technical reserves for payment purposes is not entirely accurate. The reason is that in addition to insurance liability, there are insurance contracts that carry cumulative benefits on investment amounts, so it should be completed as "Technical reserves are the amount of money that insurance enterprises must set aside to ensure the responsibilities committed to under the insurance contract". Also in Clause 3, Article 96 of this Law, it should be amended to "The Ministry of Finance shall prescribe the basis and method of establishing technical reserves for insurance" to ensure generality instead of the Ministry of Finance prescribing "the level of provision and method of provision" . In addition, as analyzed in chapter 3, the regulation on setting aside unearned premium reserves for insurance contracts with a term of 1 year or less based on the percentage method of "total insurance premiums of the fiscal year" is unreasonable and should be revised based on "the remaining term of contracts transferred to the following year" .

Regarding the method of determination: It is possible to apply the experience of Singapore, according to which the technical reserve is calculated based on the total premium method (GPV) with the assumption used being the best estimate assumption BE (Best estimate assumptions), plus a provision margin for risks that may arise in adverse situations PAD (provision for adverse deviation). This is a corresponding provisioning method, suitable for the risk-based capital and solvency management model.

* Perfecting regulations to develop investment activities of non-life insurance companies

Insurance business and investment activities are two activities that are carried out simultaneously and complement each other. Insurance business activities create idle capital for insurance enterprises to invest, while investment activities increase the ability to pay for insurance business activities. In fact, the business of non-life insurance enterprises in Vietnam, investment profits account for the majority of total profits, and investment activities even have to compensate for losses in insurance business activities. Therefore, policies to expand investment activities for non-life insurance enterprises are extremely important. From the limitations in regulations and organization of investment activities analyzed in chapter 2, the author proposes a number of solutions as follows:

- Remove the limit on assets that non-life insurance companies can invest in, supplement regulations

regulations on the list of prohibited investments and limits for each investment item.

Currently, regulations on investment activities of non-life insurance companies are limiting the assets that insurance companies can invest in. This management method is limiting investment and insurance companies are not diversifying their investment forms, leading to ineffective business performance. Therefore, the regulations on investment portfolios should be removed and only prohibited investment portfolios and investment limits should be added to manage concentrated risks. According to IAIS, to ensure safety, the laws of countries often require insurance companies to focus their investment portfolios on assets with high safety and liquidity, well-managed such as financial products such as stocks, bonds, etc.

- Supplementing regulations on calculating the minimum capital required corresponding to each type of investment assets of each insurance company.

Like other business activities, investment activities are inherently risky, or in other words, income from investment activities is a reward or compensation for accepting risks. Risk in investment activities is the possibility that investors will lose part or all of their initial investment, not only that, but also entails a major consequence for the business activities of the enterprise, which is the inability to pay for payment obligations. Although the State has policies to ensure financial safety for the insurance market by issuing regulations guiding the provision of risk provisions for investment activities. However, the provision of risk provisions in investment activities in non-life insurance enterprises in Vietnam is still considered a countermeasure in cases where the consequences of risks are not too great. Therefore, the proposed measures follow the following steps:

+ First of all, the State needs to review regulations to propose risk prevention measures to create favorable conditions to encourage enterprises to participate in investment. In addition, it is necessary to regulate insurance enterprises to make risk provisions scientifically, use derivative securities instruments to hedge investment portfolio risks or use forecasting analysis software to decide on investment strategies.

+ Next, the thesis proposes a long-term solution, which is that the State needs to have a policy guiding the calculation of the minimum capital required for each type of investment asset of each enterprise to be consistent with the orientation of capital management based on risk. Accordingly, there should be distinct risk coefficients for each asset. Insurance companies investing in high-risk, low-liquidity investment assets will have higher minimum capital requirements than enterprises investing in highly liquid assets.

In addition, it is necessary to add requirements on reporting regimes and public disclosure of information on investment activities so that management agencies can control and warn of risks early.

- Continue to create a legal corridor to promote support for sustainable investment

To support investment, the first thing the State needs to pay attention to is creating a favorable investment environment for insurance companies. Although the Government always strives to create the best conditions for investors, the financial market is quite quiet and underdeveloped, which is the reason for limiting investment channels. For the insurance market of developed countries, investment in securities is the investment activity with the largest proportion and brings the highest profit to insurance companies. In the US, Japan, and the UK, investment in securities accounts for 70% of the total investment capital of insurance companies with a very diverse investment portfolio such as stocks, corporate bonds, shareholder certificates, option contracts, and other valuable papers, increasing the choice for businesses. Therefore, in the coming time, the Government needs to have orientations and policies to change the investment structure, revive the real estate market as well as the securities market to expand investment opportunities for insurance companies. In addition, to expand the scope of business activities in line with the trend of opening up and international integration, the State can study special tax incentives for foreign investment activities [44].

4.2.1.3 Perfecting the State management policy for business processes of non-life insurance companies

* Improve policies to prevent unfair competition

Some non-life insurance companies in Vietnam today have disregarded unfair competition to obtain insurance contracts, which has become a familiar phenomenon. The main acts are: lowering insurance premiums disproportionate to the level of insurance risk; continuously increasing exploitation costs to gain services. This is not a new form of competition but is being abused by companies, posing many potential risks, affecting the financial safety of insurance companies... In addition, companies pay commissions higher than the limit or expand insurance terms and conditions that are not even included in the business to attract customers, causing costs to increase. The trend of unprofitable insurance business activities is increasing, compensation procedures are still complicated, affecting the legitimate rights of insurance participants and the reputation of the insurance industry. Lowering fees to increase market share

The proportion of reserves or services is also a factor affecting the level of KNTT assurance. Basically, the total insurance reserve funds to be ready to meet the obligation to pay compensation to customers of insurance companies has increased more than 2 times, from VND 9,426 billion in 2010 to VND 19,907 billion in 2017. According to statistics, 29/30 non-life insurance companies ensure solvency and have equity capital that meets the regulations on legal capital. However, when the market encounters large-scale risks and large losses, solvency is not guaranteed.

Unhealthy competition in the business of non-life insurance companies is the result of the design and distribution of insurance products. The fact that insurance companies pursue sales is a necessary condition for survival, but the unhealthy competition causing great consequences for the economy is due to the fact that the State's policies are not strong enough to guide operations. Therefore, in the coming time, it is necessary to add the following contents to the policies:

- The management agency must build a database for at least 5 years to determine the net fee of each transaction, then compare it with the fee schedule issued by the insurance company. Detect cases of competition by non-technical measures.

- In addition to issuing model rules and terms for some compulsory insurance lines, it is possible to pilot the issuance of floor fees and approve the terms of some insurance lines with the risk of lowering fees such as motor vehicle insurance and hull insurance.

- Strengthen management, inspection and examination to detect unfair competition phenomena.

* Perfecting policies to prevent non-life insurance fraud

In addition to the situation of unfair competition, insurance fraud is becoming a common problem and is an existing problem of the Vietnamese insurance market. Policies for developing non-life insurance business activities cannot fail to mention this issue. Insurance fraud is a fraudulent act with the number of fraud cases increasing and the amount of money being stolen increasing. According to the report of the Department of Insurance Management and Supervision, in the period of 2007 - 2012, 15/29 non-life insurance companies reported detecting fraud with 5,079 cases equivalent to 215.3 billion VND. The insurance business lines with the most fraud are health insurance and personal accident insurance, motor vehicle insurance, fire insurance, and property insurance. The main acts of fraud are: customers intentionally do not provide information or provide false information; customers collude with insurance staff to participate in insurance when an insured event has occurred; Intentionally causing injury; creating fake records, scenes, falsifying the extent of damage, etc.

In recent times, state management agencies have taken strong measures to limit this situation, such as including insurance fraud as a crime in the criminal code, but it has not been really effective. In the coming time, the following additional contents need to be implemented:

- Build a database to look up and provide information to the entire market to serve the investigation of activities of market entities.

This database includes information on net fees for each business over the years, which can be compared with the fee schedule issued by the insurance company to detect cases of lowering non-technical fees, commission costs for brokers and agents that are not in accordance with the business. For some compulsory insurance products, the management agency can issue rules, model terms, and floor fees for non-life insurance companies to refer to.

- Build a separate information channel to provide the entire market with information related to insurance buyers in the market, record the history of the subject as well as warn if there are violations. If there are cases of profiteering, the list of organizations and individuals who have profited and the forms of profiteering will also be updated. This is also a channel for exchanging and sharing experiences of insurance companies on preventing profiteering.

4.2.1.3 Proposing other policies

* Supplementing regulations on insurance supplementary activities

In order to create a legal basis for the development of both quantity and quality of insurance supplementary activities and to protect the rights of parties participating in insurance supplementary activities, especially insurance buyers, the Government needs to include this activity within the scope of regulation of the Law on Insurance Business. Specifically:

- Clearly define the contents of insurance supplementary activities that need to be regulated. Accordingly, there should be regulations on insurance supplementary services provided by a service provider, conditions and operating standards of the supplementary service provider corresponding to each type of service (consulting services, valuation services, claims management services, loss assessment services, etc.)

- Provide regulations on basic standards and conditions to ensure the quality of insurance supplementary activities, protect the legal rights of insurance buyers and parties participating in insurance supplementary activities. There are principles to ensure clear distinction of rights, obligations, and responsibilities of parties participating in insurance supplementary activities as well as the state management authority of insurance management agencies in granting, revoking the right to insurance supplementary activities, supervising, inspecting, and checking insurance supplementary activities.

- In addition, it is necessary to stipulate the conditions in case a non-life insurance company transfers part of its business processes to a third party providing supplementary services. The insurance company may only transfer non-core processes of the company and the company must ensure that the transfer does not affect the rights and interests of the insured. The insurance company must still be fully responsible to the management agency for the transferred business processes.

* Research and implement projects related to new insurance products

In order to provide more and more necessary insurance products according to the needs of insurance participants and in accordance with the socio-economic conditions of our country, the Ministry of Finance needs to coordinate with relevant ministries and branches to continue building a legal basis for the implementation of products such as risk insurance.

natural disaster, customs clearance insurance, environmental liability insurance, public property insurance, etc.

4.2.2. Solutions on the model and organizational structure of state management for the business activities of non-life insurance enterprises

The activities of state management agencies are classified into the group of management subject factors, which are the group of factors affecting state management of the business activities of non-life insurance companies. Through the results of data processing, it can be seen that the state management apparatus is suitable for the task (question 2.1.3) with an average score of 3.38, while the capacity of the management staff (question 2.1.4) is rated the worst with an average score of only 2.66 and the infrastructure serving management activities with an average score of 2.8. Thereby, it can also be seen that it is necessary to have solutions to improve the efficiency of state management agencies.

* Early and complete application of the "comprehensive" management system model

The management system model for the business activities of non-life insurance enterprises determines the implementation of the management apparatus and management methods for this field. The management system model depends on the economic and political form of each country as well as the structural characteristics of the financial market, the diversity and interweaving of activities in the financial sector. The Vietnamese insurance market was born very late compared to other developed markets, so it has assessed the advantages and limitations of management models in the world, in which the "comprehensive" model is considered to be suitable for the economic development trend to promote insurance activities and serve the economic development of countries. For some reasons, our country has not yet fully applied this model as analyzed above, so in the coming time, there should be some specific directions as follows:

- Continue to manage a number of indicators according to the norm system such as minimum capital requirements, provisions on provisioning, and deposits during the operation of non-life insurance companies to ensure the minimum financial requirements of insurance companies.

- Complete regulations related to calculating indicators and reporting

Evaluate the business performance of the enterprise for remote monitoring.

- Gradually reduce the imposition of norms related to the operating targets of insurance companies, creating autonomy and self-responsibility in business for companies. Management agencies need to focus most on ensuring the rights of insurance participants, so only make requirements related to the payment capacity of insurance companies.

- The Insurance Management and Supervision Department regularly participates in meetings

Annually to exchange management experience with international insurance managers.

* Continue to improve the state management apparatus for non-life insurance business activities.

The current management apparatus under the Ministry of Finance is considered appropriate for the scale and development of the market. However, in the coming time, when

As the market expands, insurance products become more diverse, and competition becomes increasingly fierce, it is necessary to consider upgrading the management apparatus in the following direction:

- Along with the issuance of policies, the State can consider perfecting a suitable organizational model in the direction of organizing specialized departments such as supporting the prevention of insurance fraud, supporting legal advice and arbitration. The personnel of each department is strengthened, especially the inspection department to conduct independent inspections and checks, increasing the frequency and quality of management for each insurance company.

- The state management agency needs to consider adding insurance premium calculation specialists. Currently, the Ministry of Finance, represented by the Department of Insurance Management and Supervision, does not have an insurance premium calculation specialist. All insurance companies operating in the market have only 8 insurance premium calculation specialists in life insurance companies and foreign insurance brokerage companies, but there is not a specialist in charge of calculating insurance premiums for the entire company in the non-life insurance sector. While the management agency conducts inspections and controls the provision of technical reserves in non-life insurance companies, without a group of premium calculation specialists, it is difficult to properly perform its role. The management agency will not be able to grasp whether the non-life insurance company's premium calculation is correct or not, whether it is appropriate or not, so it is difficult to make timely adjustments and interventions in cases where the company intentionally or unintentionally fails to comply with the regulations. Therefore, it is necessary to immediately supplement the staff of the Non-life Insurance Supervision and Management Department under the Insurance Management and Supervision Department with at least 1 fee calculation specialist to manage the calculation of fees and provisioning of non-life insurance companies.

* Supplementing the authority of the Ministry of Finance to increase effectiveness and ensure good implementation of state management activities for non-life insurance business activities.

- Supplement the authority of the Ministry of Finance to implement early intervention measures when a non-life insurance company shows one of the following signs of failing to ensure its financial capacity or commitment to customers, although the insurance company has not lost its ability to pay or been placed under special control. Such cases include: (i) The solvency margin is lower than a certain threshold as prescribed by the Government; (ii) The insurance company has a continuously decreasing equity capital over a certain period of time, which may harm the rights and interests of the insurance buyer, related organizations and individuals and the community in general, but there is no effective solution; (iii) The total net assets of the insurance company are not enough to protect the committed responsibilities or obligations to the insurance contract owner, related organizations and individuals, or any transaction of the insurance company or the investor of the insurance company may seriously affect the rights and interests of the insurance buyer, related organizations and individuals of the insurance company.

- Legalize regulations on authority and coordination between the Ministry of Finance and foreign insurance management agencies in coordinating management and supervision of branches of foreign non-life insurance companies in Vietnam.

* Transform management methods towards limiting administrative intervention and enhancing dialogue with non-life insurance companies

The current institutional management method has the following advantages: (i) it helps the management agency to have a deep understanding of non-life insurance enterprises; (ii) management activities take place regularly, closely linked to the organization of non-life insurance enterprises' business activities; (iii) the database is organized consistently, convenient for information synthesis. However, due to the development trend of multi-industry financial groups launching financial products that integrate many financial products, institutional management of this method also has difficulties.

Implementing the orientation stated in the strategy for developing the Vietnamese insurance market for the period 2010 - 2020, in the coming time, the management method will continue to be innovated in the direction of gradually limiting the administrative intervention of the State and the operation of insurance enterprises. Currently, the State management agency intervenes in the business activities of non-life insurance enterprises in the form of approving insurance premiums, regulating the payment of agent commissions, etc., causing constraints for enterprises. To create initiative for enterprises in organizing business, the management agency should create a legal corridor for enterprises to operate within the framework and take responsibility for their business results. Accordingly, the management agency should strengthen dialogue with enterprises to grasp the aspirations of enterprises, increase the autonomy and self-responsibility of enterprises in law enforcement combined with inspection and supervision based on objective financial and economic indicators, publicly disclosed by insurance enterprises.

* Improve the qualifications of state management staff for non-life insurance business activities.

The results of state management activities depend largely on the capacity of managers. Along with the development of the market, the capacity of managers is increasingly required to be higher and higher. In addition to having sufficient professional knowledge and good skills, managers need to have ethics and enthusiasm to be able to proactively handle problems of enterprises in a timely manner. The number of supervisors must also be strengthened and developed in accordance with the number of non-life insurance enterprises being managed. According to the Ministry of Finance's calculations, if following international standards, one officer usually manages from 1 to 2 insurance enterprises depending on the size of the insurance enterprise, while currently, one officer manages about 3 insurance enterprises. In the context of gradually shifting to a risk-based management method of insurance enterprises, many qualitative assessments are needed, so managers need to have enough experience and understanding. Therefore, it is necessary to have a good planning, recruitment and treatment regime for highly qualified and practical cadres. At the same time, it is necessary to improve the political capacity, working style and professional ethics of cadres.

In the past, the recruitment of civil servants of the Insurance Management and Supervision Department depended on the general civil servant recruitment of the Ministry of Finance. Recruited civil servants mostly met the general requirements but did not meet the

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