Vietnam Insurance Sector: Rich Potential despite Challenges

As estimated by experts, the life insurance market in particular and the insurance sector in general grows slowly due to the impacts of the global economic crisis. By the end of the first quarter this year, the number of new insurance contracts was reduced 11 percent on-year and the number of expired contracts was up 15 percent on-year.

 

Regarding the life insurance, the soaring inflation in mid 2008 led to the fact that more clients have ended insurance contracts prior to their deadlines and more people have withdrawn money from banks. The fall in the potential client sources has resulted in a smaller number of new clients.

 

The global financial crisis has not only caused impacts on Vietnam’s economy but also on import-export and foreign investment as well as Vietnam’s insurance sector. Many enterprises owe insurance fees while new revenue of life insurance has considerably decreased. In addition, some domestic non-life insurance enterprises are facing many difficulties in raising their registered capital due to hard capital mobilization. Both domestic and foreign new investors carefully consider their investment plans in the insurance market. Generally, the insurance sector still grows well despite the impacts of the global economic crisis in 2008 and in the first six months of this year. Starting operation over 10 years ago, the insurance sector of Vietnam has quickly kept up with the older markets thanks to the rapid globalization and great progress in communication technology. Currently, many enterprises are targeting new clients in rural areas where people’s living standards are gradually increasing but user-friendly financial services, particularly life insurance have not yet developed its full potential.

 

Currently, a total of 11 insurance companies are providing life insurance services in Vietnam, most of them are foreign-invested. According to statistics of the Vietnam Insurance Association, among 27 licensed non-life insurance companies in Vietnam, regardless of MSIG Insurance (Vietnam) Company Limited (MSIG Vietnam) that has not yet been operational, eight companies made profits in 2008. Bao Viet took the lead with profit of VND74.8 billion; followed by UIC with VND50.7 billion; VIA with VND30.5 billion; Bao Long with VND6 billion; PVI with VND4.8 billion; SVI with VND3.5 billion; VNI with VND1.9 billion and PJICO with VND900 million.

 

The insurance sector of Vietnam had a revenue of over VND27 trillion in 2008, accounting for 2.2 percent of the country’s GDP last year despite many shortcomings. Of the total, life insurance had revenue of VND10.334 trillion, up 9.19 percent on-year; non-life insurance, VND10.879 billion; reinsurance, VND1.05 trillion; and profit from investment, VND5.7 trillion. The sector had invested over VND57 trillion in the economy in 2008. In the first quarter of this year, life insurance companies had revenues of VND2.514 trillion, up 7 percent on-year, the lowest-ever for years.

The insurance sector of Vietnam boasts a great potential for development. According to the report “Vietnam Insurance Sector Forecast to 2013” made by the Business Wire Group, Vietnam insurance market is one of the most developed markets worldwide. With a population of 85 million and a great potential of attracting foreign investment, Vietnam is rated as one among few countries with potential in life insurance. Business Wire forecast that the life insurance market in Vietnam will grow 11 percent in the 2009-2013 while the non-life insurance market will develop up to 24.5 percent in the same period.

Mr Jung Seop Hyun, General Director of Korea Life Vietnam even pins a greater hope in the Vietnamese insurance market for saying that the market “grew slowly in first months of this year but it should be a positive growth. The life insurance market in Vietnam has run out of its galloping growing period in the starting time but still boasts a great potential. At present, only 5 percent of Vietnamese people have bought life insurance, which is much lower than the figure of over 90 percent in South Korea. Korea Life Vietnam has completed over 300 percent of its business targets since first operation in March 31, 2009.”

 

In order to obtain the growth rate of over 10 percent, in addition to diversifying insurance products in a bid to serve more clients’ demand, financial experts said that insurance enterprises need to improve efficiency of their investment channels by using standby capital sources as well as enhancing the quality of insurance agents.

In order to continuously ensure stable and sustainable development of the insurance market, the Price Management Department has been gradually accomplishing and issuing new legal documents on insurance business that will be the transparent legal framework for the healthy, safe and stable development of the insurance market. Specifically, the department has scrutinized and issued regulations on management and development in the insurance business, amended and supplemented some regulations on dealing with administrative violations in the insurance business by detailing activities of violation and improving responsibility of managers, building legal framework to encourage insurance enterprises to launch new products, particularly for healthcare, education and pension fields, as well as policies to stimulate the development of the insurance services for agriculture, forestry and aquaculture. The department has been also intensifying management, inspection and control over insurance enterprises, and developing many information systems to connect state management agencies to insurance enterprises and timely facilitate market management and supervision.

 

The situation is that insurance enterprises have been developing asynchronously and inefficiently in terms of technology. The technology systems of almost all insurance companies neither have updated all new insurance contracts nor classified clients, insurance risks nor made analysis on reasons and risks of losses.

Their insurance product distribution networks also embrace a lot of shortcomings. The growth of the insurance sectors over the past years has been attached with the expansion of the distribution network via agents, which means that more agents will have more revenues and many enterprises have not yet paid sufficient attention to the quality of agent training and operation.

 

The quality of insurance services, particularly compensations, is still inadequate. Documents and procedures of the compensations have not yet been made properly and transparently but have still been cumbersome and complicated. There have still existed a lot of problems in making dossiers and collecting evidences to settle the compensations for casualties, which are often provided by legal entities like police and hospitals.

 

Insurance enterprises’ self-determination and self-settlement in the compensations have not yet been encouraged but been criminalized. Enterprises of consulting and settling compensations have not yet effectively operated and their verdicts are often not legally ratified while punishments and fines to insurance enterprises that are late to make compensations have not yet been strict enough to prevent mercenary activities.

 

“Focus on the launching of new insurance products,” Mr Dang Ngoc Thanh, Deputy Director of Bao Viet Life Insurance

It will take at least five years to strongly develop interbank new insurance products when people change their habit of using cash and become more aware of insurance-buying.

 

Being aware of the current situation, enterprises are focusing on two major insurance products: associated insurance and joint investment trust. The former product is an insurance form that provides buyers with insurance in cases of natural disasters and sudden accidents as well as makes them become investors by joining hands with insurance companies to invest in associated funds. The investors will have multiple choices to select the associated funds.

 

Developing services to refund falling revenue due to the crisis is a good solution to the insurance sector, and life insurance products should be diversified to serve clients.