Foreign insurers will expectedly set a stronger foothold in Vietnam when the country commits to the equal treatment of foreign players after it has been a member of the World Trade Organization (WTO) for five years.
With the entry of two foreign giants namely US-based ACE and South Korea’s Korea Life earlier this year, the number of foreign life insurance companies registered in Vietnam since 2005 is nearly equal to the total number of those registering during the 1999-2005 period.
Currently, the country has 15 foreign invested insurance companies and 25 representative offices of foreign insurers which offer a combined amount of nearly 100 life insurance products.
A recent survey conducted by the Government and the United Nations Development Program (UNDP), the domestic insurance market will heat up as the country allows foreign non-life insurance firms to establish direct branches in Vietnam five years after Vietnam’s entry into the World Trade Organization.
Notably, Vietnam pledges to offer the same treatment to foreign players as it does to domestic insurers. This means that the country will have to remove three restrictions levied on foreign non-life insurers. Namely foreign insurers are now not permitted to provide insurance products to state owned enterprises, Vietnamese individuals or joint stock companies where the state holds the majority stake.
Regarding the scopes of operations, there remain some restrictions on opening branches. For example, foreign insurance firms are required to operate in Vietnam for a number of years before opening their branches in the country.
Additionally, foreign players have not yet been permitted to operate compulsory insurance such as motorcycle and auto insurance which makes up 30 per cent of total premium turnover.
Presently, these three restrictions offer great incentives to domestic insurers.
According to deputy director of the Ministry of Finance’s Insurance Department Le Song Lai, Vietnam has been opening its insurance market to foreign invested enterprises since 1999. In spite of the aforementioned restrictions, experts forecast foreign insurance firms would soon dominate the domestic market. After a six year presence in Vietnam, UK-based Prudential now accounts for 40 per cent of market share.
The above restrictions were attributed to hindering the further development of foreign non-life insurance companies. After nearly a decade of operations in Vietnam, foreign non-life insurers hold a modest 7 per cent of market shares.
While the continued deregulation of the market would expectedly reverse this trend, experts expect that domestic insurers would remain dominant in the non-life insurance market.
To survive upon greater international integration, domestic insurance companies have no way forward but to team up to set up larger financial groups, said Lai. Domestic and foreign revivals would compete against each other regarding the quality of services and efficient distribution networks rather than financial clout, Lai added.
VNS, VnEconomy
Vietnamese
