Nâng cao chất lượng dịch vụ trượng hợp của công ty bảo hiểm liên hiệp luận văn ths kinh doanh và quản lý

VIETNAM NATIONAL UNIVERSITY - HANOI
HANOI SCHOOL OF BUSINESS

NGUYEN CHIEN THANG

IMPROVING SERVICE QUALITY
THE CASE OF UNITED INSURNCE COMPANY

Major: Business Administration
Code: 60 34 05
MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisors: Dr Nguyen Viet Dung

Hanoi – 2013


TABLE OF CONTENT
CHAPTER I: OVERVIEW OF THESIS ............................................................................... 1
1.1. INTRODUCTION.............................................................................................................. 1
1.2. OBJECTIVE OF SUBJECT ................................................................................................. 1
1.3. SCOPE AND METHODOLOGY OF RESEARCH. ................................................................... 2
1.3.1. Scope of research .................................................................................................. 2
1.3.2. Method of research ............................................................................................... 2
1.4. STRUCTURE OF THESIS .................................................................................................. 3
CHAPTER II: THEORETICAL BASIS OF SERVICE QUALITY AND NON-LIFE
INSURANCE BUSINESS ........................................................................................................ 4
2.1. DEFINITION AND NATURE OF SERVICE ........................................................................... 4
2.1.1. Definition of service .............................................................................................. 4
2.1.2. Nature of service ................................................................................................... 5
2.2. SERVICE QUALITY AND FACTORS OF SERVICE QUALITY ................................................. 6

2.2.1. Definition of service quality .................................................................................. 6
2.2.2. Factors of service quality ..................................................................................... 8
2.3. SERVICE QUALITY MEASUREMENT .............................................................................. 11
2.4. CHARACTERISTICS OF NON-LIFE INSURANCE BUSINESS ............................................... 15
2.4.1. Principle of insurance business ......................................................................... 16
2.4.2. Characteristic of non-life insurance service ....................................................... 17
CHAPTER III: RESEARCH METHODOLOGY AND SOME PRELIMINARY
RESULT .................................................................................................................................. 21
3.1. QUALITATIVE RESEARCH............................................................................................. 21
3.1.1. Design qualitative research ................................................................................ 21
3.1.2. Research model and scale of measurement ........................................................ 25
3.2. QUANTITATIVE RESEARCH .......................................................................................... 27
3.2.1. Design quantitative research .............................................................................. 27
3.2.2. Method of data analysis ...................................................................................... 29
CHAPTER IV: ANALYSIS OF INSURANCE SERVICE QUALITY OF UNITED
INSURANCE COMPANY ..................................................................................................... 31
4.1. BUSINESS OVERVIEW OF UNITE INSURANCE COMPANY .............................................. 31
4.1.1. History ................................................................................................................ 31
4.1.2. Business overview ............................................................................................... 32
4.2. SUMMARY OF QUANTITATIVE RESEARCH RESULT ........................................................ 37
4.2.1. Sample description .............................................................................................. 37
4.2.2. Result of measurement scale testing ................................................................... 39
4.3. ANALYSIS OF ACTUAL SERVICE QUALITY OF UIC ........................................................ 41
4.3.1. Reliability of insurance service........................................................................... 41


4.3.2.
4.3.3.
4.3.4.
4.3.5.

4.3.6.

Responsiveness.................................................................................................... 43
Service capacity .................................................................................................. 47
Customer care ..................................................................................................... 50
Convenient service access .................................................................................. 53
Overview assessment of service quality of UIC. ................................................. 56

CHAPTER V: SOLUTIONS AND RECOMMENDATIONS TO IMPROVE
SERVICE QUALITY OF UNITED INSURANCE COMPANY ....................................... 60
5.1. OBJECTIVE AND DIRECTIONS OF DEVELOPMENT OF UIC ............................................. 60
5.2. SOLUTIONS TO IMPROVE SERVICE QUALITY OF UIC .................................................... 61
5.2.1. Improving favorable service access for customer .............................................. 61
5.2.2. Improving responsiveness ................................................................................... 64
5.2.3. Improving service capacity ................................................................................. 68
5.2.4. Improving customer care .................................................................................... 70
5.3. RECOMMENDATION ..................................................................................................... 73
5.3.1. Recommendation for Insurance Supervisory Authority – Ministry of Finance .. 73
5.3.2. Recommendation for Vietnam Insurance Association (VIA) .............................. 73
CONCLUSION ....................................................................................................................... 76
APPENDIX .............................................................................................................................. 80


LIST OF FIGURE
FIGURE 2.1: HIERARCHICAL OF SERVICE QUALITY BY BRAD AND CONIN ..................................... 9
FIGURE 2.2: A COMPREHENSIVE FRAMEWORK FOR SERVICE QUALITY BY DABHOLKAR AND
COAUTHORS ........................................................................................................................ 10

FIGURE 2.3: SERVICE QUALITY MODEL BY PARASURAMAN, ZEITHAML, AND BERRY (1985) ..... 12
FIGURE 2.4: DIMENSIONS OF SERVICE QUALITY PERCEIVED BY CUSTOMERS OF

PARASURAMAN AND COAUTHORS ...................................................................................... 14
FIGURE 3.1: RESEARCH MODEL OF INSURANCE SERVICE QUALITY FACTORS .............................. 26
FIGURE 4.1: ORGANIZATIONAL STRUCTURE OF UIC .................................................................. 33
FIGURE 5.1: COOPERATION MODEL WITH BANKS ....................................................................... 63
FIGURE 5.2: RISK PREVENTION SUPPORT PROCESS ..................................................................... 72


LIST OF CHART
CHART 4.1: PROPORTION OF PREMIUM REVENUE OF UIC BY INSURANCE CLASS (2012) ............ 35
CHART 4.2: MARKET SHARE OF UIC COMPARISON WITH THE MAIN COMPETITORS .................... 35
CHART 4.3: PREMIUM REVENUE OF UIC COMPARED WITH DIRECT COMPETITORS ...................... 36
CHART 4.4: REVENUE GROWTH RATE COMPARISON OF UIC AND AVERAGE OF MAKET .............. 36
CHART 4.5: BUSINESS TYPE OF SURVEYED CUSTOMER ............................................................... 38
CHART 4.6: HUMAN SCALE OF SURVEYED CUSTOMER ............................................................... 39
CHART 4.7: INSURANCE CLASSES ............................................................................................... 39
CHART 4.8: EVALUATION RATIO OF RELIABILITY OF INSURANCE SERVICE ................................. 41
CHART 4.9: EVALUATION RATIO OF RESPONSIVENESS OF UIC ................................................... 44
CHART 4.10: EVALUATION RATIO OF RESPONSIVENESS OF UIC ................................................. 48
CHART 4.11: EVALUATION RATIO OF CUSTOMER CARE OF UIC ................................................. 51
CHART 4.12: EVALUATION RATIO OF CONVENIENT SERVICE ACCESS OF UIC............................. 54
CHART 4.13: EVALUATION RATIO OF SATISFACTION OF UIC INSURANCE SERVICE QUALITY ..... 57
CHART 4.14: SERVICE QUALITY EVALUATION CLASSIFIED BY HUMAN SCALE OF CUSTOMER ..... 57
CHART 4.15: SERVICE QUALITY EVALUATION CLASSIFIED BY INSURANCE CLASS ...................... 58


LIST OF TABLE
TABLE 4.1: PREMIUM REVENUE OF UIC BY INSURANCE CLASS (2012)....................................... 34
TABLE 4.2: SUMMARY CUSTOMER EVALUATION OF RELIABILITY OF UIC ................................. 42
TABLE 4.3: SUMMARY CUSTOMER EVALUATION OF RESPONSIVENESS OF UIC ........................... 44
TABLE 4.4: SUMMARY CUSTOMER EVALUATION OF SERVICE CAPACITY OF UIC ........................ 48

TABLE 4.5: SUMMARY CUSTOMER EVALUATION OF CUSTOMER SERVICE OF UIC ...................... 51
TABLE 4.6: SUMMARY CUSTOMER EVALUATION OF CONVENIENT SERVICE ACCESS OF UIC ...... 54


ABBREVIATIONS
BVTM

Bao Viet- Tokio Marine Insurance Company

NKSJ

Nipponkoa –Sompo Japan

SVI

Samsung Vina Insurance Company

VIA

Vietnam Insurance Association

UIC

United Insurance Company


CHAPTER 1: OVERVIEW OF THESIS
1.1.

Introduction

After 18 year of market opening, non-life insurance market of Vietnam has
dramatically developed; average growth rate of premium for the period of
2006-2012 is about 23.6%. In 2012, Premium of non-life insurance market is
more than VND 22,316 billion accounted for 0.9% (compared with 0.6% in
2006). At the end of 2012, there are 29 non-life insurers on market including
16 joint-stock companies and 10 foreigner joint venture and foreigner owned
companies. The dynamic of foreigner companies helped to increase
competitiveness of market.
With increasingly severe competition in market, price-driven competition
will not bring sustainable growth for insurance companies. Therefore,
improving service quality has become the goal of many insurance companies
on the market
After 3 years working in United Insurance Company, I see that improving
service quality is important and priority task of company. Therefore, I chose
the subject “Improving service quality: the case of United Insurance
Company” as my master thesis
1.2.

Objective of subject

UIC was established in 1997, with 16 years old UIC is one of most mature
insurer in Vietnamese insurance market. According to business characteristic
of company, UIC mainly focus on servicing Japanese client and most of them
is longtime client, hence for many years, service quality has not been assessed
and negatively affected. In result, company has become more dependent on
client, passive in client service, slow adoption to change and competitiveness
of market. UIC has very small market share and especially the growth rate of
1

Vietnamese client is rather low compared with competitors. Therefore,
company need to find the answer for the question “whether clients are
satisfied with service quality of company or not? How much is satisfactory
degree?” The objectives of subject are:
- Defining a model to measure and evaluate non-life insurance service
quality
- Measure and evaluate insurance service quality of UIC
- Propose solutions and recommendations to improve service quality of
UIC.
1.3.

Scope and methodology of research.

1.3.1. Scope of research
In this subject, I research assessment of customer about UIC service.
Data collected is through conducting survey with client in some provinces of
in the North of Vietnam. Time of survey is in 2013.
1.3.2. Method of research
Utilized measuring model is based on SERVQUAL model adjusted by
particulars of insurance service. The process of research is shown as below:
Preliminary research: is implemented through qualitative methods with
technical discussions in group or duel. This research will be used
SERVQUAL model to establish preliminary scale of measurement of non-life
insurance.
Formal research: is done by quantitative methods. I used a
questionnaire to investigate the assessment of client of insurance Service
quality of UIC. This study aims to adjust and test the draft scale to form
official scale about insurance service quality. Scale was assessed by Cronbach
2

alpha, EFA factor analysis, multi linear regression. After this step, I can
explore what are factors of service quality
After testing, the scale will be used to analyze actual insurance service
quality of UIC through descriptive statistic. After this step, I can explore
what is the current status of service quality of UIC
Based on study results, I propose solutions and recommendations to
improve service quality in the near future. This process can answer the
questions: What solutions should be made to improve insurance service
quality of UIC?
1.4.

Structure of thesis

The thesis includes 05 chapters: Chapter 1: Overview of research subject;
Chapter 2: Theoretical basis of service quality; Chapter 3: Research
methodology and some preliminary result; Chapter 4: Analysis of the actual
service quality of UIC; Chapter 5: The solutions and recommendations to
improve the service quality of UIC in; and the conclusion outlined the major
findings of the project.

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CHAPTER 2: THEORETICAL BASIS OF SERVICE QUALITY
AND NON-LIFE INSURANCE BUSINESS
2.1.

Definition and nature of service

Practices from the developing countries and the world have demonstrated
that: Along with the economic development the services sector is increasingly
playing an important role and the contributing big proportion of GDP of each
countries. The services sector led the economy as the center of economic
activity and it has a close relationship with many other areas of the economy.
In Vietnam, at the end of 2012, service sector accounted for 43.5% of GDP.
In despite of recession of overall economy, the growth rate of service sector
reached 5.97%, which is still higher than GDP’s growth rate. This shows that
the potential to develop the services in the future in our country is very large.
The following part of this section will answer for some question, including
What is service? What is the nature of the service? What is service quality?
What factors determine the quality of service? How to measure the quality of
service?
2.1.1. Definition of service
Services is a very popular concept, there are many definitions of service.
According to Zeithaml & Britner (2000), the service is the act, process, how
to perform a certain task in order to create customer value used for satisfying
the needs and expectations of customers.
According to Kotler & Armstrong (2004), services are activities or
benefits that businesses can offer to customers in order to establish, strengthen
and expand the long-term and cooperative relationships with customers.
Implementation services can and cannot be related to the goods of its material
form.
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Fitzsimmons said that the service is an intangible activity and storage,
made to a customer and the customer is the creator of the product.
2.1.2. Nature of service

To identify a service, it is often based on the following four specific
characteristics:
Characteristic of intangibility is defined as a certain things that cannot
touch, see, taste, hear or be aware of other goods (Groth and Dye, 1999).
Intangibility is the most important difference to distinguish between goods
and services (Santos, 2002). Due to the intangible characteristics of services
that now very difficult to determine the customer's perception of service, as
well as their appreciation about service quality is how (Parasuraman,
Zeithaml and Berry, 1985) .
Characteristic of inseparability is shown that service provider perform
service at the same time with the service consumption of customer . Service
providers cannot hide any fault or deficiency of services (Ghobadian, Speller
and Jones, 1994).
For services with high labor content, such as quality occurs during service
delivery, service quality expressed in the process of interaction between
customers and employees of service provider (Svensson, 2002). For those
services that require the participated opinions of consumers as health care,
less service companies perform quality control management because
consumers influenced to this process. In such cases, the opinion of the
customer as patients describe the symptoms to the doctor, consulted by the
customer becomes important for the quality of service activities
Characteristic of heterogeneity:

This feature is also known as the

distinctiveness of the service. Accordingly, the implementation of the service
5


varies depending on how the service is provided, location of service, targeted

customer of service or time of service. This feature is most recognized for
service required high labor force. Requirement for uniform quality of
employees will be very difficult to ensure (Caruana & Pitt, 1997). The reason
is that what the company intends to serve can be completely different from
what the consumer receives.
Characteristic perish ability: Services are perishable; they cannot be
stored. Therefore, an empty seat on a plane, for example, is a lost opportunity
forever. Restaurants are now charging for reservations, which are not kept,
charges may be made for missed appointments at the dental clinic. Perish
ability does not pose too much of a problem when demand for a service is
steady, but in cases of unusually high or low demand, service organizations
can have severe difficulties .The above characteristics are generally referred
to in many texts as being what makes services marketing so different.
However, this assumption should be queried on a number of grounds. Like all
sweeping generalizations, generalizations concerning services marketing do
not always represent the full picture. Consider the question of tangibility. In
the main, services can be broken down into three main classifications.
2.2.

Service quality and factors of service quality

2.2.1. Definition of service quality
Quality of service is a concept that attracted much attention and
controversy in the literature because the researchers have found difficult to
define and measure service quality in unity
Gronroos (1984) defined service quality perceived as a result of an
evaluation process when customers compare their expectations with the
service they actually received
6

Parasuraman, Zeithaml and Berry (1988) also views this as to that service
quality as a form of attitude, related but not homologous to customer
satisfaction, is the result from the comparison between the customer
expectations with actual service that they are aware of their consumption.
Expectations is the desire, the desire of customers to service, as customers
often feel that the service provider should offer something better than what
they did. Consumer expectations are formed based on their demand for goods
and services; purchase from experiences in the past and from the information,
they received from external vendors, friends or communication activities of
the service provider.
Cronin and Taylor (1992) suggested that, view concept service quality, as
a gap between expectations and outcomes of services, is not appropriate. They
point out the confusion related the relationship between service quality and
customer satisfaction for services. The concept of customer satisfaction is
defined as a gap between expectations and results, or an inconsistent with
expectations.
To clarify this issue, it is necessary to distinguish the differences between
the concept of service quality and customer satisfaction: According to
Parasuraman, Zeithaml and Berry (1988), perceived service quality is an
overall assessment or attitudes related to the characteristics of services.
Meanwhile, satisfaction is related to a particular transaction. Service quality
and satisfaction with the mutual relationship, service quality creates
satisfaction, but cannot infer vice versus. The satisfaction with the service, it
is not possible to conclude definitely that high-quality service because
satisfaction is influenced by many other factors (product quality; prices;

7

situation factors; personal factors). There is only temporary satisfaction,
customer always requires higher service quality.
Moreover, the concept of customer expectations is different exposed in
theory of service quality and theory of satisfaction theory: In the theory of
satisfaction, expectations are considered as customer’ prediction what can
happen in given transaction in the future. Conversely, in theory of service
quality, the expectations are desire of the customer, for example, they feel that
businesses should provide something better than the current ones
(Parasuraman, Zeithaml and Berry, 1988).
2.2.2. Factors of service quality
The traditional models of service quality that assess the client's awareness
about service quality based on a number of factors or aspects, all view service
as a complex mixture of explicit and implicit attributes. Service quality should
not be viewed as a discrete structure but a combination of several factors or
aspects that they have different content and nature
Gronroos (1984) argues that the process of awareness of customer service
reflected in two aspects:
- Technical quality: Is aspect results, what is the results of the service
provider giving customers?
- Functional quality: A process perspective, how were service functions
realized?
Customer aware service quality in the two aspects of this: What do they
receive? How do they receive? How are form and manner of service like?
Depending on the evaluation of customers for service is good, average or bad.
Lehtinen and Lehtinen (1991) suggested that it is necessary to consider
service quality in the three aspects. The three aspects are:
8


- Material quality: Includes equipment and physical environment.

- Transactional quality: is mainly derived from the matching between
communication styles of delivered service and the customer's style.
- Company quality: is mainly assessment of company’ exterior form
Brady and Cronin (2001) also viewed service quality composed of three
dimensions, which has two dimensions same as Gronroos opinion of the
technical quality (the results of the service) and functional quality (quality of
transaction). The third dimension is the physical environment of the service.
Each of these dimensions (communication, environment and results) has three
sub-elements and customers conjunct with their assessment from additional
factors to form their perception of the quality of each the first main
dimension. Combination of that assessment will give the final result of overall
service quality

Figure 2.1: Hierarchical of service quality by Brad and Conin
Source: Brady, Cronin (2001), ―Some new thoughts on conceptualizing perceived
service quality: A hierarchical approach‖, Journal of Marketing, Vol. 65, pp. 37

Dabholkar, Shepherd and Thorpe (2000) said that service quality is the
customer's overall evaluation, which based on different elements / attributes
9


related to service, thereby forming the overall assessment about service
quality, rather than a simple sum of the component elements. Multi-level
model is as follows:

Figure 2.2: A comprehensive framework for service quality by
Dabholkar and coauthors
Source: Brady, Cronin (2001), ―Some new thoughts on conceptualizing perceived
service quality: A hierarchical approach‖, Journal of Marketing, Vol. 65, pp. 37

Different researches of service quality provide different complex model,
which express factors influencing and forming service quality. In scope of this
thesis, I would like to use the model SERVQUAL by Parasuraman, Zeithaml
và Berry (1985) to apply for my analysis. This model has been proven as
effective model not only in marketing but also various sector such as:
healthcare, banking service, retail… The content of this model and
measurement scale of this theory are introduced in next section.
10


2.3.

Service quality measurement

Parasuraman, Zeithaml and Berry (1985) are those who pioneered in
research on service quality and provide a comprehensive, feasible model to
measure service quality. The authors said that there are five different gaps
affecting the assessment of customers about service quality, which includes:
The Gap 1: this is the gap between customer expectations and perceptions of
the business about those expectations. The basic point of this gap is due to
companies do not understand all the characteristics that make up the quality of
their services and how to transfer them to customers to satisfy their needs.
The Gap 2: this is the gap between the perceptions of the business about
customer expectation and the business characteristics of the service design. In
many cases, companies can realize the expectations of customers but
company cannot always convert these expectations into specific criteria for
quality and transfer exactly characteristics of services that customer expected.
The Gap 3:this is the gap between the business characteristics of service
provided and service delivery process. In service, the employees can directly

contact with customers, play an important role in the process of creating
quality. However, not always the staff can complete tasks according to the
criteria set out
The Gap 4: this is the gap between the service delivery process and the
implementation of promises to customers through external communication
activities. The promises in the advertising and promotion programs can
increase the expectations of customers but also will reduce the quality. In
such cases, customers feel when service providers do not comply with what
was promised

11


The Gap 5: this is the gap between customer expectations of service and their
perception of the results after the service consumer. Service quality depends
on this gap. Once customers see no difference between their quality
expectations and quality they feel when using a service, the quality of service
is considered perfect.
Parasuraman, Zeithaml and Berry (1985) introduced a model of Gap of
service quality as follows:

Figure 2.3: Service quality model by Parasuraman, Zeithaml, and Berry
(1985)
Source: Parasuraman, A., Zeithaml, V. A., and Berry, L. L (1985), ―A conceptual
model of service quality and its implications for future research‖, Journal of Marketing,
Vol. 49, Issue 4, pp. 4.

Parasuraman, Zeithaml, and Berry (1985) suggested that service quality is
a function of the gap no five, so service providers must find ways to narrow
this gap. In order to archive this, the enterprise must narrow the gap 04 listed

12


before (1,2,3 and 4 gap) because it is likely to affect the service quality.
Therefore, it is necessary to perform a sequence of action to measure
customer perceptions of service after consumption to check if service met
their expectations or not, that is the measurement of service quality.
According to service quality measurement model by the theory of
asymmetric customer expectations initiated by Parasuraman and coauthors
(1985), service quality includes 10 dimensions that customers use to form
their expectations about services, as well as evaluating their awareness about
service quality after their consumption. Ten dimensions of service quality are:
Reliability;
- Reliability
- Responsiveness
- Competence
- Access
- Courtesy
- Communication
- Credibility
- Security
- Understanding/knowing the customer
- Tangibles

13


Word of mouth
communication

Personal need

Past experience

Reliability
Responsiveness
Competence

Expected service

Access
Perceived service
quality

Courtesy
Communication
Credibility

Perceived service

Security
Understanding/
knowing the customer
Tangibles

Figure 2.4: Dimensions of service quality perceived by customers of
Parasuraman and Coauthors
Source: Parasuraman, A., Zeithaml, V. A., and Berry, L. L (1985), ―A conceptual
model of service quality and its implications for future research‖, Journal of
Marketing, Vol. 49, Issue 4, pp. 8.

Ten dimensions of service quality model mentioned above have the
advantage of covering most aspects of the service. However, this model has
the disadvantage of complexity in measurement. Moreover this is theoretical
model, there may be many dimensions of service quality model not achieve
value distinction. Therefore, in later researches Parasuraman, Zeithaml and
Berry (1988, 1991 and1993) adjust the model to be more particular to five
dimensions of service quality, which are:
14


1. Reliability: demonstrate the ability to perform appropriate and timely
service from the very first time.
2. Responsiveness: express the desire, willingness of Service Company to
provide prompt service to customers.
3. Assurance: represented by professional and polite service manner. It can
be knowledge and courtesy of employees and their ability to convey trust and
confidence.
4. Empathy: is the attention and carefulness to each individual customer.
This aspect is demonstrated by the ability to understand customer needs, are
interested in their personal identity and regular customers.
5. Tangible: is the appearance of physical facilities, equipment, personnel,
and communication materials
2.4.

Characteristics of non-life insurance business

In daily life and business activities despite of always paying attention
prevention and precaution, people still have to encounter unpredictable risk.
The risks due to many reasons, such as risks of the natural environment, risks

due to the progress and development of science and technology, social
environmental risk
Whatever the reasons, the risks often bring people difficulties in life such
as job loss, income reduction, destruction of property, shut down production
and business organizations, business, personal, etc.. This would affect the
social and economic life in general.
To cope with these risks, people have many different measures to control
and overcome the consequences caused by the risk. At present, in view of the
risk management, there are two groups of measures to deal with risks - which
are a group of risk control measures and group of financing risk measures
15


Group risk control measures including measures of avoiding risks,
preventing losses, mitigating risks. These measures are often used to prevent
or minimize the possibility of risk.
Group of risk financing measures include risk accepting and insurance.
These are the measures used before the risks with the aim of overcoming the
consequences of the loss caused by the risks, if any.
Insurance is an important part of the risk management program of the
organization as well as individuals. In view of the risk management, insurance
is risk transferring on a contractual basis. On social point of view, insurance is
not only the transferring of insurance risk but also reducing risk by focusing
on a large number of predictive risk can allow for losses when they occur.
Non-life insurance is a commitment between the insured and the insurer in
which the insurer will pay for the participant or beneficiary a certain amount
when events predetermined happen, but participants must pay the full
premium on time.
2.4.1. Principle of insurance business
-

Insurance business based on majority rule: insurance fund was formed

based on the contributions of the many participants in insurance; this fund is
used to pay for a small number of participants as unfortunate loss of lives and
property. The greater number of insurance participants, the greater the ability
to compensate and business activities of the insurance companies more
efficient.
-

Principles for risk diversification: In insurance business, insurance

company normally calculates premium based on majority rule. However, this
is only predictable possibility of risk; in fact, it is possible that the real
possibility exceed predictable possibility. In this case, premium is not enough
16


for claim compensation, so this is now the risk for insurance company. To
ensure the payment of compensation, the insurance companies diversify risks
through reinsurance and co-insurance.
-

Financial investment: The insurance industry is quite different from

other industry, when an insurance contract was signed; insurance companies
collect the premium from customer and realize liability for customer by the
contractual commitment. Therefore, there is a period of waiting time between
receiving premium and compensation to the customer. That is why the
insurance companies usually have a large idle and stable capital. Insurance

companies can invest in many different areas of the economy to increase the
profitability of capital. As a general trend, the profit of insurance company not
only comes from original insurance activities but also mainly comes from
financial investment activities. In the increasingly competitive market,
insurance companies those use funds effectively and achieve the highest level
of profitability will have a positive impact on business performance of the
company.
-

Utmost good faith: In insurance business, insurance company

absolutely trusts insurance buyer about the information provided such as
insured object. If any dishonesty was found, the insurance will be whole or
partly invalid. In contrast, insurance service is only a contractual commitment
of insurance company for their customer, so customer can only experience
service in case of claim happened. Quality of insurance service, assurance of
rights, rationality of premium… are all depended on honesty of insurance
company
2.4.2. Characteristic of non-life insurance service

17


-

Product: The product is basically an insurance contract recorded a

binding agreement between two parties and legal requirement for each other.
A party makes the proposal and the other party accepts terms. A party pay
premium and the other commit to compensate in the case agreed. Insurance

products are characterized by:
 Unstable profit: profitability of insurance product is depended on
level of risk of insured object.
 The product is easy to imitate: an insurance contract, even if the
original cannot be patented, can not be protected.
 In terms of mentality: buying a insurance services is similar to
buying a commodity, but the buyers just want to prevent and limit
risk and do not want to receive insurance compensation.
-

Insurance premium: Price of insurance is insurance premium.

Accordingly, insurance buyers pay for insurance companies to sell their risk
and take commitment of compensation if the risks that occur in the future.
Insurance cost depends on many factors such as: business insurance, risky
level, limit of liability, insurance coverage ...
-

Claim: Claim is an accurate compensation for the loss of insured

object, which is compatible and reasonable with liability specified in
insurance contract. Concept of claim applies only in the property insurance
business. In the personal insurance, this concept is called compensation since
people is priceless.
In addition to above characteristics, a non-life insurance contract should
contain below characteristics:
 Contract of adhesion: All non-life insurance policies are contracts
of adhesion. This means that one party (the insurance company)
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