Insurance market maintains positive outlook

Phung Dac Loc

The Vietnamese insurance market has overcome recent hardships, but there is more to be done to increase competition. Viet Nam News reporter Bich Ngoc spoke to the general secretary of the Association of Vietnamese Insurers, Phung Dac Loc, on the issue.

What kind of difficulties do Vietnamese insurers face this year?

The domestic insurance market is challenged by the same difficulties facing the economy. Cutting down public investment has reduced insurance contracts for construction projects and property. Also, many industries have been affected by the economic downturn, which has triggered a decline in insurance sales.

Competition has become more fierce and competing with decreasing premiums has been controlled by stricter corporate governance within enterprises after years of making losses. In companies that own developed technology system and advanced systems of business, insurance contracts are forwarded to their headquarters before implementation. This has allowed competition to spread throughout a range of operations, increasing customer benefits such as compensation and attracting more customers with better services.

Have insurers faced difficulties complying with regulations?

In today's free business environment, insurance companies don't need to dodge the law. Some occasionally violate administrative procedures such as changing personnel or branch addresses without informing authorities, or more serious problems such as violating the investment structure. The investment structure defines the ratio of insurer's investment in other sectors including bank deposits, real estate, securities and loans, however some insurance companies have had trouble following the ratio.

How do foreign insurers perceive the Vietnamese market?

Foreign insurers always assess the risks and when entering the Vietnamese market, they saw that competition here could increase through improving conditions and decreasing premiums. This has brought about temporary benefits to customers but has also made them lose solvency. Some foreign insurers accepted losses to gain market share, but others have directly sought profits regardless of market share. Each has had a specific strategy and those who have made profits have blossomed, such as the United Insurance Company Viet Nam – a joint venture between the Bao Minh corporation, Sompo Japan Insurance and South Korean LIG Ltd – and Bao Viet Tokio Marine insurance (formerly Viet Nam International Assurance). Increased competition in the Vietnamese market doesn't have a negative impact on foreign investment, but rather improves conditions for doing business in the country.

Also, foreign insurers have many options of both direct and indirect investment into Viet Nam. They're entitled to cross-border supply under our commitments to the World Trade Organisation, which lowers risks and costs associated with operating a company within the country. This is a concern for domestic insurers as foreign insurers are able to tap in the market without establishing an entity here. Foreign non-life insurers will also be able to set up branches here next year.

The decree guiding the amended law on the insurance business is about to be issued. What recommendations did the association contribute to complete the regulations on foreign insurers?

The Government should add the same rating criteria for foreign insurers to set up branches in Viet Nam as those for foreign insurers who supply cross-border services. That's to say these insurers should have at least a "BBB" rating from Standard & Poor's, "B++" by AM Best, "BAA" by Moody's or equivalent ranking results by the same functional institutions in the financial year prior to the year of providing cross-border services to Viet Nam. When the local branches begin to generate revenue, they will transfer it to their parent companies. The role of parent companies in this case is no different from reinsurance receivers, so the criteria will help secure the solvency of the branches as well as protect consumers. If the parent companies do not satisfy relevant criteria, the branches shall only operate and reinsure to insurance companies doing business inside Viet Nam, and shall not be allowed to transfer their revenue to parent companies.

Clear definitions of cross-border supply, insurance brokerage services and insurance bidding should be established so judicial authorities and dispute settlement bodies can easily apply the rules.

In which way will the Vietnamese insurance market develop?

Convergence is an inevitable trend in the insurance market. There is a big gap between Vietnamese insurers. The larger companies have accumulated a wealth of information about customers and are not willing to share with smaller firms. The sharing of a common database among insurance companies would be very difficult to establish. Smaller firms with limited capacities will have to merge with bigger players to survive. However, this trend will not materialise in the coming years, as the Vietnamese market offers a lot of potential to tap into, in terms of both demand and businesses' capacity.

At the moment, the penetration rate is high and there are new sectors such as export credit, agriculture, nuclear power and subway project insurance. In the future, insurance will not be compulsory by the State's instructions and people will participate in the market according to demand. — VNS