Vietnam has been integrating with the world economy and gradually opening its insurance market in the past few years, so Vietnamese Insurance Companies can adapt to the new market conditions.
From 1994-1998, along with Baoviet Insurance Company, the Government granted business operating licenses for Bao Minh, VINARE, Bao Long, PJICO, PVI, and PTI, while Bao Viet is permitted to provide Life Insurance products as a Pilot project. At the same time Vietnam granted business licenses for 3 joint venture companies: VIA (between Bao Viet and a Japanese Insurance Company), UIC (Bao Minh and a Japanese Insurance Company), and Insurance Brokerage Company BV-AON.
From 1998-2004, the Government granted the first business operating license for a non state joint stock insurance company- Vien Dong (Oriental) Company and non life insurance operating licenses for two 100-percent foreign owned companies (ALLIANZ and GROUP PAMA), 4 Life Insurance Companies (Bao Minh, CMG, Prudential, Manu Life, AIA) and other joint venture insurance companies like Vietnam-Australian, SVI and IAI.
The next two years (2005-2006) are known as the fastest market opening period, with business operating licenses granted to domestic insurance companies like BIC, AAA, Toan Cau (Global), Bao Nong, Bao Tin and foreign insurance companies like AIG, QBE, ACE, Liberty (non life), ACE life, Prevoir and New York Life (life insurance).
Vietnam Insurance Market growth
In the Vietnam insurance market there are 30 insurance companies and 8 insurance brokerage companies in 3 market segments: Life Insurance, Non Life Insurance and Insurance brokerage. Those companies are cooperating and competing hard with each other for growth.
The Vietnam insurance market has a high growth rate of 20 per cent per year. It can basically fulfil all the needs for risk assurance and an economic shield for economy, and it is very attractive for international financiers who are permitted to conduct insurance business in Vietnam. Total 2006 life insurance premiums are estimated at 8500 billion VND, and non life insurance at 6500 billion VND. Claim compensation and dividend payment are estimated at 7500 billion VND.
The number of insurance products is rising. There are now 700 non life insurance products and more than 100 life insurance products for customers to choose from. Insurance products distribution channels are developing rapidly, with 8 insurance brokerage companies and thousands of life and non life insurance agents, who conduct public relations work for insurance companies and present insurance products to customers.
The financial capacity of insurance companies has substantially increased. 90 per cent of insurance companies have their own capital many times more then status capital. Technical reserve funds, total assets and economic investment are fast expanding, assuring claims payment settlement capability of insurance companies.
The legal and business environment has became more favourable with the adoption of a number of laws and documents related to the insurance business, such as the Maritime Law, Aviation Law, Road Transportation Law, Waterway Transportation Law, Fire prevention Law and the Law on Tourism.
A number of compulsory insurance products have been introduced, like civil liability for vehicle owners, insurance on domestic waterway transport providers, insurance for fires and explosions, insurance for Vietnamese tourists travelling abroad, insurance on construction works and installations, employers liability insurance on construction works, and insurance for some specific professions.
Business Opportunities
The National Economy will grow at a rate over 8 per cent per annum, increasing the potential for insurance industry development. According to Vietnam’s socio-economic development strategy, in 2010 per capita GDP will be 1000-1100 USD/person, total investment will account for 39-40 per cent of GDP (with 11 billion USD in ODA and 25 billion USD in FDI), 69 billion USD exports and 70 billion USD imports, 6 million international tourists and 23 million domestic tourists, 20 million barrels of crude oil, 12 billion cubic metres of gas, 6.5 million tonnes of steel, 50 million tonnes of cement, marine vessels with a total of 5 million tonnes deadweight capacity, 500,000 fishing vessels and 500,000 river vessels.
Equitization of state-owned enterprises under the roadmap will be completed in 2009. The number of companies with foreign invested capital will increase, and the foreign investor’s practice of buying insurance to offset business and production risks will spread to other social and economic organizations. The level of education will increase, together with personal income, creating more demand for health care and personal insurance and social safety. Government insurance regulations will improve, creating a sound legal framework for healthy business operation of insurance companies and increasing confidence in insurance companies.
Challenges for insurance companies when Vietnam entered WTO
Insurance businesses, as a service industry and a financial service, are one of the fastest opening sectors, and enjoy overwhelming support from all government agencies and ministries. However, not everyone understands the role of the insurance industry. It is not only to make timely payment for damages caused by weather disasters, accidents and unseen circumstances worth thousands billions of VND every year, but also to invest in the economy (in 2006 estimated worth of 35 thousand billion VND), provide jobs for hundreds of thousands of persons, and contribute to the state budget more then 1000 billion VND annually, the equivalent of the top 10 provincial budgets.
Competition is at a bigger scale and higher level. First, it is competition between insurance companies operating in Vietnam on insurance products, service quality, human resources and insurance product distribution channel development. Second, it is competition between insurance companies operating in Vietnam and overseas insurance companies on providing insurance products in compliance with Vietnam’s WTO commitments. And third, it is competition between insurance companies and other financial services providers like saving trusts, securities companies, or real estate businesses.
Growing awareness among the people means their choice of insurers and insurance products will be more sophisticated and demanding. Insurance companies with strong brand names, a reputation for timely, accurate and accessible claims payments, and which bring value added services to customers will be chosen, instead of simply those with low premiums rates and sales promotions.
The number of foreign insurance companies operating in Vietnam will increase, together with more and more newly established domestic insurance companies. They all will have market access strategies and gain market shares by different methods, such as advertisement and long term technical loss absorption (even more then 5 years) that leads to an unequal competition but allowed for the rest of insurance companies.
Government insurance regulations are increasingly improved, allowing more self governance and reliability for insurance companies at the same time as improving protection of the rights and interests of insurance policies holders.
Phung Dac Loc
General Secretary of Vietnam Insurance Association
Vietnamese
