Research Proposal: Competitive Advantage Network Trust and Customer Loyalty and Branding

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Marketing Strategy for American International Assurance Bermuda (aiab) in Order to Sustain Competitive Advantage in the Hong Kong Insurance Market

Due to the strong competition in the insurance market in Hong Kong, AIAB is losing its market share and it found that most market shares are taken by Banks, especially HSBC, starting from the year 2000. This is shown in 'Appendix A' attached to this study. AIAB has been established in Hong Kong for 75 years and the brand name & customer loyalty should been built up, why it is so easy for other competitors to gain the market share in couple of years. This research seeks to understand the root causes of why AIAB is losing its market share while the selling price of all players in the market are closed to each other. There may be several factors which may cause AIAB to lose its market shares including: (1) the distribution channel 'Network' is becoming the most effective way to reach customers, therefore, Banks can gain the market share rapidly and AIAB is concentrating on Agency force and it may regard its weakness and limit its channel to distribute the products; (2) Trust plays an important role in Customer Loyalty and since Banks in Hong Kong are closely regulated and monitored by Hong Kong Monetary Authority (HKMA) which helps Banks in creation of a profession and disciplined image as well as increasing the level of trust between banks and the customer. Meanwhile, a few scandals from insurance companies (including AIAB) are heard that the agents took customer's capital for own investment; and (3) Brand name is one of the major factors that would attract customers to consume repeatedly. AIAB has been established 75 years and acted professionally, however, other competitors "Banks" has also established its brand name for a long period of time in banking insurance, therefore, we can assume that the company with a good brand name not only apply for its core product and it can also apply for other products as well.


The work of Kristensen and Chan (2002) states that Hong Kong " situated at the southeastern tip of the mainland of China, adjacent to the estuary of Pearl River. The territory embraces a total area of just less than 1,100 square kilometers covers Hong Kong Island, Kowloon and the New Territories and Island. Backed by its strategic location at the southern gateway to the Mainland of China and a hub for business in Asia-Pacific region, Hong Kong Special Administrative Region (HKSAR) had been serving as a global centre for trade, finance, communications and business. Additional factors attracting business and investment consist of Hong Kong's free market policies; a legal system based on the English common law, independent judiciary; low and simple tax regimes and an excellent regulatory framework." (Kristensen and Chan, 2002) Kristensen and Chan additionally state that following the return of Hong Kong to Chinese sovereignty "in July 1997, the HKSAR adopted social, economic, and political systems distinct from those in the Mainland under the 'one-country, two systems' principle. The Basic Law, as the constitutional law of the HKSAR, is the legal basis to this principle. The Basic Law's objectives are to uphold the rule of law, maintain an executive-led government, sustain an efficient civil service, practice free enterprise and free trade, follow prudent financial management policies, and keep a simple and predictable tax system with a low tax rate." (Kristensen and Chan, 2002) The Hong Kong dollar is stated to be "pegged to the U.S. dollar at the rate of 7.8." (Kristensen and Chan, 2002) Kristensen and Chang state that under this exchange rate system "the government undertakes to back the entire monetary base of Hong Kong with U.S. dollars. The linked exchange rate is the basis of Hong Kong's monetary system. It plays an important part in supporting Hong Kong's role as a trading, service, and financial center." (Kristensen and Chan, 2002) The banking system in Hong Kong is a "three-tier system of deposit-taking institutions, namely, licensed banks, restricted license banks and deposit-taking companies." (Kristensen and Chan, 2002) Hong Kong is stated to have "one of the highest concentrations of banking institutions in the world."...with 78 of the largest 100 banks worldwide having an operation in Hong Kong. As of September 2001 there were 149 licensed banks as well as 48 restricted license banks and 55 deposit taking banks in business in Hong Kong. The Exchange Fund's statutory role in Hong Kong is "primary to affect the exchange value of the currency of Hong Kong." (Kristensen and Chan, 2002) Stated as the secondary and subsidiary role of the exchange fund in Hong Kong is "...maintaining the stability and integrity of the monetary and financial systems, with a view to maintaining Hong Kong as an international financial center." (Kristensen and Chan, 2002) This is stated to be managed "as two distinct portfolios" with the first being a "Banking Portfolio to ensure that the Monetary Base related to the Currency Board operations is fully backed by highly liquid, short-term U.S. dollar denominated interest-bearing securities." (Kristensen and Chan, 2002) The second is stated to be "an Investment Portfolio to preserve the fund's value for future generations in Hong Kong." (Kristensen and Chan, 2002)

Kristensen and Chan (2002) state that the HKFI's November 30, 2001 statistics show that "...there were 206 authorized insurers in Hong Kong, of which 142 were pure general business insurers, 45 were pure long-term insurers, and 19 were composite insurers writing both general business and long-term business. Over 50% of the insurers were incorporated in overseas." The Insurance industry in Hong Kong is reported to be "rather fragmented, particularly in non-life insurance business, where the top five insurers command no more than one-third of insurance premiums. This illustrates a feature of the Hong Kong market in the sense it has low entry barriers resulting in a large number of foreign and local participants and/or strong franchises." (Kristensen and Chan, 2002) While the affluent population in Hong Kong is stated to be "receptive to insurance products" there are limits on "car ownership and natural disaster exposures" which have restricted non-life insurance business growth. Kristensen and Chan state that the Swiss Re Economic Research & Consulting (Sigma 5/1999) reports that in terms of non-life insurance that Hong Kong is "underinsured when analyzing the GDP per capita and insurance market penetration. With an average GDP per capita of approximately USD $50, 000 the market penetration should be 3% however is it closer to 1%. In contrast, life insurance business Hong Kong is over-insured by almost 2%. An above-average life insurance penetration (a trend across Asia generally, not just Hong Kong) is generally due to a lack of state-sponsored pensions schemes and comparatively higher interest rates on insurance products compared to traditional bank products." (Kristensen and Chan, 2002) In regards to the Insurance Industry Development, it is stated that the general insurance industry "...recorded a growth of 8.1% in 2000. Total gross premiums increased to $17,872 million from $16,532 million in 1999. They represented 1.4% of the Hong Kong GDP in 2000. The general insurance industry continued to suffer underwriting loss for the fourth consecutive year. However, the magnitude of the loss narrowed down in 2000. General liability and motor vehicle business were the heaviest loss-making businesses. Long-term insurance business enjoys a healthy growth of 12.6% in 2000. The total premium in force in 2000 was $46,515 million, representing 3.7% of the Hong Kong GDP. The number of individual life policies attained 4.6 million, covering about 69.1% of the population in Hong Kong. However there are no available statistics in the local market to reflect the actual number of policyholders." (Kristensen and Chan, 2002)

Annual Average GDP Growth by %

Source: Kristensen and Chan (2002)

Total Premium

Source: Kristensen and Chan (2002)

In regards to insurance claims it is stated by Kristensen and Chan "Having experienced continual deterioration in claims since 1997, the general insurance market achieved a slight improvement in 2000, with the overall net claims incurred ratio decreasing from 67.5% in 1999 to 64.1%. All major classes except motor vehicle and goods in transit businesses had various degrees of improvement in claims experience." (2002) As of 2002 there were a total of 206 authorized insurers in Hong Kong's market and of which 100 are incorporated in Hong Kong with the others incorporated overseas. Stated as the top five general insurers in Hong Kong are the following:

Bank of China Group Insurance Co. Ltd.,

The Ming An Insurance Co. (HK) Ltd.,

American Home Assurance Co.,

AXA General Insurance Hong Kong Ltd., and HSBC Insurance (Asia) Ltd.

The top five long-term business insurers are:

AIA (Bermuda) Ltd.,

Manulife (International) Ltd.,

AXA China Region Insurance Co. (Bermuda) Ltd.,

HSBC Life (International) Ltd., and The Prudential Assurance Co. Ltd. (Source: The OCI Annual Report 2001)

In regards to Intermediaries in the insurance industry it is stated that the IARB provided statistics of November 30, 2001, shows that there were 396 insurance brokers in Hong… [END OF PREVIEW]

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