Viewpoints on Perfecting State Management of Business Activities of Non-Life Insurance Enterprises in Vietnam

Invest and strictly manage investment assets, ensure customer benefits, help the insurance market develop safely and sustainably.

4.1.4. Viewpoints on perfecting state management of business activities of non-life insurance enterprises in Vietnam

* Firstly, the system of state management policies for business activities of non-life insurance enterprises ensures comprehensiveness, timeliness, suitability with the development practices of the Vietnamese market and gradual integration with international practices.

The policy system is considered an important foundation for implementing state management of non-life insurance business activities. In recent times, the system of state management policies for non-life insurance business activities has been increasingly improved. However, the development of the market together with the formation and expansion of multinational economic groups has led to a trend of unifying management and supervision of countries around the world in a common corridor. Therefore, it requires comprehensive and timely legal policies and close cooperation between management agencies of countries in compliance with international principles and standards.

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Building a comprehensive and timely policy system means that inappropriate regulations must be amended and deficient regulations must be supplemented to cover all the contents that need to be managed. In addition, regulations must be completed in the direction of applying international insurance management and supervision principles, but it is necessary to take into account the necessary conditions to be able to make changes and amendments in each stage suitable to the conditions of Vietnam. If the above orientations are achieved, it will create an important and fundamental legal corridor for the business activities of non-life insurance enterprises. This will both promote the development of insurance business and create favorable conditions for state management. Many contents are not timely and consistent with the principles in the current legal regulations on non-life insurance business in Vietnam with the regulations in ICPs, mainly due to the conditions and development level of the Vietnamese insurance market. Therefore, there needs to be a roadmap and conditions for funding and human resource support from IAIS, ADB, and IMF organizations to build a policy system.

* Second, improve the operational efficiency of state management agencies in a professional and modern direction to gradually limit administrative intervention of the State, increase the autonomy and responsibility of enterprises in law enforcement.

In a market economy, state management agencies play a role as a tool to ensure that the market operates effectively and that participants respect the common rules of the game. In other words, this is the agency that ensures that policies are implemented to achieve management goals. A comprehensive, timely and appropriate policy system that is suitable for Vietnam's conditions and international integration needs to be properly managed and implemented to realize regulations into action. Sanctions are built to deter, prevent and correct violations in the process of market operations. The effectiveness of state management agencies is demonstrated by:

present in the following aspects: (i) operating model; (ii) staff capacity; (iii) management operating costs; (iv) level of application of information technology in management. According to the orientation stated in the Strategy for developing the Vietnamese insurance market in the period of 2010

- In 2020, in the coming time, the monitoring and management method will not interfere too deeply in the operations of businesses or customers.

Orient the activities of the state management agency towards the business activities of non-life insurance enterprises in a professional and modern direction, aiming to direct the activities of the management agency in accordance with its functions and tasks with a team of highly qualified management staff to be able to use management methods as well as modern technology applications, keeping up with the management model in the region and the world. Only with that orientation can we manage the insurance market in the context of the achievements of the 4.0 technology revolution being applied in all fields at the same time as systemic risks are increasing.

* Third, improve inspection and supervision work in the direction of combining compliance supervision with safety supervision to promptly detect potential risks in the business activities of non-life insurance enterprises in order to have timely intervention measures.

The State's inspection and supervision of the business activities of non-life insurance enterprises aims to ensure that the State's management policies are fully and correctly implemented by non-life insurance enterprises to maintain a safe, stable and sustainably developing insurance market.

Currently, the content of inspection and supervision in general and inspection and supervision of business activities of non-life insurance companies in Vietnam in particular have many similarities with the content of a financial audit or audit of activities that have occurred to find errors. This method of inspection and supervision provides conclusions to serve the handling of violations of non-life insurance companies but does not warn early about risks to non-life insurance companies to propose and request insurance companies to implement preventive solutions to limit market failures. In the context of countries in the world conducting increasingly deep and wide international economic integration, the level of economic exchange between countries and economic regions is increasingly large, the issues related to the economic development of a country with other countries in the world are increasingly closely related and interact, and are influenced by each other. Therefore, in order to improve the ability to respond quickly to the international situation and handle international issues, the construction of a forecasting and warning system for the national economic situation is one of the urgent issues in the current period. However, the current early warning indicator system does not provide information for non-life insurance companies and management agencies to make timely decisions. Specifically, Circular 195/2014/TT - BTC stipulates that there are 12 evaluation indicators but they are calculated from past data on inconsistent reporting forms and do not have updated information, reports, or analysis and monitoring handbooks for insurance companies.

Therefore, if we combine the completion of the inspection and compliance monitoring process with the establishment of an early warning system for risks, we will both ensure the effectiveness of state management and support non-life insurance companies in preventing risks and operating healthily.

4.2. SOLUTIONS TO IMPROVE STATE MANAGEMENT OF BUSINESS ACTIVITIES OF NON-LIFE INSURANCE ENTERPRISES IN VIETNAM Based on the issues raised regarding the business activities of non-life insurance enterprises

life insurance in Vietnam, state management experience of some countries, results of running the Kano - IPA model on policy groups, subjective causes from management entities and perspectives on perfecting state management of non-life insurance business activities, according to NCS, to improve the quality, effectiveness and efficiency of state management of non-life insurance business activities in Vietnam, it is necessary to focus on implementing the following solutions:

4.2.1. Solutions on promulgating state management policies for activities

business of non-life insurance companies

The insurance market has developed steadily in recent years, and it is undeniable that the role of the increasingly improved legal framework in this field has contributed to creating a transparent and equal business environment, facilitating the development of the insurance market, and ensuring the implementation of international commitments.

However, according to the general assessment, the effectiveness and efficiency of State management on the business activities of non-life insurance enterprises as analyzed in Chapter 3 is still limited. To improve the effectiveness and efficiency of State management and ensure the development of business activities of non-life insurance enterprises, in the coming time, it is necessary to synchronously implement the following solutions:

4.2.1.1 Perfecting state management policies on organization, human resource administration in non-life insurance enterprises

* Supplementing some regulations on management and operation in non-life insurance enterprises

Corporate governance is the process of policy making by the board of directors and management to manage the operations of the enterprise as well as control risks within the permitted scope. A well-managed enterprise is a factor that reduces the operational risk (C4) of that enterprise. International experience shows that well-managed organizations are often strong enough to survive through difficult periods and unexpected recessions, so they can survive much longer than poorly managed organizations. The administrator and operator of an insurance enterprise must have professional knowledge in the field of insurance business. If the administrator and operator do not have a degree in one of the fields such as finance, banking, business administration, law, it will be very difficult to perform the role of managing and controlling insurance business activities. In particular, to be consistent with the method of capital management and risk-based payment capacity, insurance enterprises need to manage risks very well to ensure the health of the enterprise. In addition to the efforts of the insurance enterprise, the State

The country also needs to have impact policies to further promote governance activities in DNBH, specifically:

- Amend and supplement regulations on the organizational structure of insurance companies according to the form of enterprises (joint stock companies, limited liability companies, mutual organizations), regulations related to the transfer of shares, capital contributions, conversion of enterprise forms... to comply with changes in the Enterprise Law.

- Develop legal regulations requiring insurance companies to implement risk management through the requirements, standards, and conditions of the Board of Directors of the enterprise.

- Legalize a number of principled regulations on insurance business management, moving towards mandatory requirements for the establishment of an independent risk management department.

- Clearly define the responsibilities of the enterprise in appointing administrative and executive positions; define the responsibilities of the administrative and executive person for the operation and financial situation of the insurance enterprise.

- Supplement regulations on cases of refusal or request for dismissal of administrative and executive positions.

- Supplementing the standards for administrators and executives in the professional field, that is, this degree must be in one of the following fields: finance, banking, business administration, law. The reason for requiring a university or higher degree in one of the above fields is because insurance business activities are complex activities, to carry out these activities, it is necessary to have a certain level of expertise and professionalism. Supplementing regulations on professional degrees of administrators and executives of insurance enterprises will limit risks in the management of insurance business activities of insurance enterprises, helping the insurance market develop safely and healthily.

* Increase the effectiveness of internal control regulations of non-life insurance companies

Business processes as well as internal control and risk management must ensure consistency, unity and high legal validity, helping to build a corporate governance system and risk management according to international practices. Specifically:

- Clearer regulations on the organizational model of the Internal Control Board in non-life insurance enterprises. Currently, enterprises are implementing two models: Internal Control Department under the Executive Board and Internal Control Department under the Board of Directors, of which the first model is more popular. However, to ensure the independence of internal control activities from management activities, there must be regulations to uniformly apply to enterprises.

- Supplementing regulations on establishing a risk control system for non-life insurance enterprises, especially domestic enterprises. Implementing the Government's Resolutions on facilitating business support, administrative procedures are being cut down, it is also necessary to develop standards for risk management systems, internal control, internal audit in the Law on Insurance Business.

This is the basis for insurance companies to proactively build a risk control system suitable to their business conditions, ensuring safety and efficiency for their own operations. This is also the basis for enhancing the initiative of non-life insurance companies in identifying, classifying, and quantifying operational risks in a comprehensive and long-term manner, towards risk-based capital management.

- Specify the regulations for cross-checking departments participating in the business process, between member units to control loopholes in the business process, and establish early warnings.

- More specific regulations on internal audit in terms of principles and scope of activities, content and methods of operation, reporting procedures, functions and tasks of departments. Accordingly, internal audit must be under the board of directors or audit committee with specific standards of the Chief Internal Auditor and experts on ethics and professional standards. In addition, there should be regulations on methods and organization of internal audit. Regarding internal audit methods, gradually move towards risk-based, focusing on units, departments, and processes with high risk levels to limit losses for insurance companies. Organize internal audit according to a vertical model or only at the head office, while for member units, a decentralized model is applied.

* Complete regulations on insurance agent activities to promote agent development in non-life insurance product distribution channels.

Agents are a very developed insurance distribution channel in the world, contributing significantly to increasing insurance premium revenue, but currently the rate of professional non-life insurance agents in Vietnam is still very limited compared to the total number of insurance agents. Using too many staff when exploiting insurance reduces the efficiency of the distribution system due to great inertia, high costs, low productivity, and at the same time causes conflicts of interest with other distribution channels. Therefore, gradually reducing sales staff, focusing on developing staff doing risk assessment and insurance pricing is an inevitable trend in the coming time.

Due to the characteristics of short-term non-life insurance business activities, contracts with low value while the commission regime currently prescribed by the State for some insurance lines is still low has not created motivation for agents [55]. The regulation of the commission payment regime for agents being too low as currently prescribed leads to two problems arising. One is that non-life insurance companies that want to sell insurance products through agents must accept to pay higher than the maximum commission level as prescribed in order to have agents. Two is that insurance companies have transformed the amount paid to agents by falsely declaring agent commission documents but in reality do not pay but deduct this amount from the insurance premium that must be paid by insurance participants to compete. This is considered a painful problem in current non-life insurance business activities when the formal regulations themselves create loopholes for unfair competition. In addition,

Individuals, especially organizations, are implementing the sale of insurance products through the “affirnity marketing” channel (can be called non-professional agents/ “semi-professional” or “affiliate agents”) such as banks, telecommunications service companies, inspection companies, auto garages, travel agencies, schools, retailers such as supermarkets, auto showrooms, convenience stores, etc., but these distribution channels are currently not regulated by law. Therefore, the thesis proposes the following solution:

- Require agents who want to operate to have a certificate of eligibility to operate as an agent issued by the Ministry of Finance. In addition, it is necessary to supplement regulations on granting and revoking certificates of agency operation for organizations.

- The Ministry of Finance needs to soon conduct research and amend the payment policy for non-life insurance agents in the direction of allowing insurance companies to proactively determine agency costs to promote the healthy, stable and sustainable development of the market.

- Add regulations on the term of insurance agent certificates (expected to be 5 years) so that agents who have passed the exam and have a certificate must focus on practicing seriously. After this term, agents must take a renewal exam. The organization assigns the Ministry of Finance or a unit authorized by the Ministry of Finance to uniformly manage the organization of exams and issuance of insurance agent certificates.

- There should be clearer regulations on professional requirements as well as product supply limits for non-professional agents. Specifically, these types of agents should only be provided with certain types of products related to the main production and business activities of that organization or individual. For example, travel agents are only allowed to sell travel insurance, auto garages, vehicle inspection agencies, gas stations are only allowed to sell motor vehicle insurance to individuals, schools are only allowed to sell student accident insurance;...

- There should be specific regulations on responsibilities for the person in charge of the main agency in case the organization violates regulations on agency activities, leading to the insurance company terminating the agency contract.

- Consider including a provision allowing a percentage of costs to be controlled for rental assistance, location, training support, and initial facility setup in addition to commission costs.

- Adjust the legal form for organizations performing insurance intermediary activities such as private enterprises and partnerships to promote intermediary activities.

4.2.1.2 Perfecting state management policies on finance of non-life insurance companies

* Amend and supplement regulations on capital and financial capacity of non-life insurance enterprises towards risk-based management.

Current regulations on capital management and KNTT in our country are built on European experience from more than 30 years ago. Accordingly, capital requirements

is determined in absolute numbers, regardless of the specific business characteristics and scale of each enterprise. The minimum capital requirement is determined based on two risks affecting the enterprise's operations: insurance risk and interest rate risk. However, the business operations of non-life insurance enterprises are increasingly affected by many factors and mixed risks from many fields such as fluctuations in the financial market, investment market, technology, environment, etc. Therefore, the application of capital and capital requirements as they are currently will no longer be appropriate when it is not possible to determine the actual capital source required corresponding to each enterprise's risk. Currently, most insurance management agencies in the world are gradually shifting their capital management and solvency models towards individualizing capital requirements corresponding to the operational risks of each enterprise (European countries use the Solvency II model while North American and Asian countries use the RBC risk-based capital model). Accordingly, the minimum capital required for non-life insurance enterprises is determined based on the scale of operations and the total risks that may affect the business activities of each enterprise. At the same time, early intervention and adjustment measures are also designed to be applied promptly to prevent enterprises from losing their capital.

The conversion of regulations on capital and KNTT based on the risk of the enterprise is consistent with market conditions and the general trend of the world, contributing to improving the effectiveness and efficiency of State management of non-life insurance enterprises' business activities. Therefore, it is necessary to supplement the Law on Insurance Business with basic regulations for the implementation of capital and KNTT management of non-life insurance enterprises corresponding to the risk, and at the same time prescribe a roadmap for conversion, appropriate implementation methods, creating a legal basis for developing detailed regulations in guiding Decrees and Circulars [22].

In the current conditions of our country, the financial market is not yet developed, the database reporting to the management agency is not unified, costs and human resources are limited, the Government should study the roadmap for building a risk-based capital model by referring to an existing model similar to Singapore and adjusting it to suit Vietnam (according to the assessment of Actuarry Watson Wyatt Consulting Company). Through the study, the NCS proposes the following amendments:

- Build a capital model based on 4 types of risks: insurance risk (C1), asset risk (C2), concentration risk (C3) and operational risk (C4). In which:

C1: Insurance risks are calculated for each type of risk according to premium reserves and compensation reserves. The risk costs applied to each insurance business are different based on the level of volatility of each type of insurance business. Insurance risks of non-life insurance companies in Vietnam include: (i) Insurance premium risk: This risk level of non-life insurance companies in Vietnam is very high due to the use of unfair competition measures; (ii) Insurance reserve risk: Arising from the internal limitations of non-life insurance companies such as the capacity of the team of actuaries, the level of technology application in business, even consulting.

management and shortcomings of regulations related to the business activities of DNBH.

C2: Asset risk is calculated based on the risks of different markets including: debt, equity, real estate and exchange rates. C2 reflects both mismatching between assets and liabilities.

C3: Concentration risk of a particular asset, counterparty or group of counterparties. C3 is calculated based on the risk of the business exceeding a certain concentration limit.

C4: Operational risk is the risk arising from limitations in management capacity, processes and internal control and inspection systems that are not complete and consistent.

In addition, additional regulations are required for non-life insurance companies to calculate the minimum required capital corresponding to the risks of the company.

The total risk requirement (TRR) of an insurance company is the sum of the risk requirements of each insurance fund in the company: TRR = C1+C2+C3+C4

- Regulations on determining the minimum capital required for each type of risk: Usually done by the general formula of the amount at risk multiplied by the risk coefficient or calculating the value of assets and insurance liabilities based on the basis prescribed by the management agency to compare with available capital. The risk coefficient is determined according to the levels for insurance premiums and compensation, taking into account fluctuations in domestic and foreign insurance. This coefficient depends on the results of aggregated data, analysis of the entire market, and requires time to test and reach a consensus among all non-life insurance companies.

- Capital requirements: Enterprises must maintain available capital higher than the minimum required capital corresponding to the risks of insurance enterprises. In which, the available capital of enterprises is determined according to the Government's guidance, which is the basic capital source of enterprises to ensure risks in insurance business, ensuring commitments to customers participating in insurance. Available capital is determined mainly from the owner's capital, with additional adjustments or deductions of some items depending on the level of risk or certainty of the item.

- Solvency requirements: Compare the FR equity (financial capacity of the enterprise) with the amount of financial resources/risk assets of the enterprise, taking into account the initial legal capital: FR > TRR. Therefore, the provisions on solvency in Article 77 of the Law on Insurance Business No. 24/2000/QH12 should be amended to create a mechanism for completing the decrees guiding the Law. Accordingly, an insurance enterprise meets solvency requirements when: (i) Making full provisions as prescribed; (ii) The minimum capital requirement is not lower than the legal capital and corresponds to the risk of the insurance enterprise.

- Supplementing regulations on intervention measures of management agencies : Based on the results of calculations on capital requirements and risk-based capital, it is necessary to propose intervention measures appropriate to the business's operating situation in each stage of market development and ensure early warning.

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