Vietnam Insurance Portfolio Expands
By Marius | Published March 30, 2012
Vietnam’s fledgling insurance market is beginning to develop innovative new insurance products that better reflect the country’s increased consumer spending power and corresponding demand for more comprehensive coverage options.
It was announced this week that prominent local travel agent Saigontourist will sign a new cooperation deal with Chartis’ Vietnamese insurance subsidiary to provide improved insurance coverage to buyers of their luxury outbound tours from Vietnam. At a conference on Hanoi and Vietnam tourism development held on Tuesday, Saigontourist officials explained that all customers enrolled in the company’s Premium Travel program heading to Africa, America, Australia, Europe, Japan or New Zealand from next month onwards will be eligible for subsidized coverage worth up to VND2.1 billion (US$100,000) per trip.
Chartis’ input has enabled Saigontourist to improve their insurance coverage ability considerably. Previously, the travel company could only offer basic cover for its Vietnamese tourists when they visited other countries. The most they could offer was VND630 million (US$30,000) in insurance per customer while the coverage limit of VND2.1 billion (US$100,000) was only applied to certain customers from Ho Chi Min City and Hanoi. Saigontourist Travel director Vo Anh Tai, told local media at the event that this needed to change if the company hoped to attract more clients, both within Vietnam and abroad. “Insurance is one of the top five issues that tourists care about when traveling, so we’ve decided to add more benefits for customers,” Tai told Vietnam Business Times.
In raising the coverage amount, outward bound Vietnamese tourists will also soon enjoy improved benefits in line with other international travel services. Saigontourist and Chartis’ new insurance package provides 17 new benefits including overseas medical support, customer service and accident support, and added benefit riders in case of terrorism, natural disasters or other adverse events. In addition, outbound tourists from Vietnam will also now be eligible for a reimbursement of VND105 million (US$5,000) per client if the tour they selected is canceled, or if their maximum medical expense is exceeded as result of an injury or illness while abroad.
Despite facing high inflation, interest rates and other economic difficulties last year, Vietnamese citizens are spending more money than ever on travel, with the number of booked tours growing both locally and increasingly abroad now as well. According to Saigontrouist, the number of customers buying Premium Travel tours has increased considerably over the past year and now accounts for roughly 25 to 30 percent of the company’s outbound tourism business. Local travel firms expect the number of outbound travelers to keep rising steadily as a result of private sector development and improved consumer spending habits. Overall, Vietnam’ luxury tourism industry is expected to grow by 30 to 40 percent over the next decade.
The development of Vietnam’s tourism sector coincides with the country’s insurance sector, which has itself grown considerably in the years following Vietnam’s entrance into the World Trade Organization (WTO) in 2007. There are 43 insurance companies in Vietnam, 29 non-life and 14 life insurance, with more expected to enter the market soon due to the sector’s potential for sustainable premium growth. According to the latest statistics available from the Association of Vietnamese Insurers (AVI), the country’s non-life insurance sector’s premium value hit VND21 trillion (US$1 billion) in 2011, a year-on-year growth rate of 25 percent. That figure for the life insurance sector was VND16 trillion (US$768 million) last year, which was up 17 percent from 2010.
Despite this progress however, Vietnam’s insurance market remains small and underdeveloped for a middle-income country of 90 million people, and insurer output pales in comparison to many of its neighbors in the Asia Pacific region. Many local insurers anticipate a more modest growth rate of around 5-10 percent as 2012 continues, with inflation control, macroeconomic stability and regulatory issues still seen as the main obstacles going forward. One of the other chief concerns will be to address the country’s rising claims costs. According to the Vietnamese Ministry of Finance, Vietnamese insurers paid out about VND16.486 trillion (US$791 million) in compensation during 2011, an increase of 56 percent over the amount reimbursed in 2010. Of the total, the non-life insurance sector paid out VND8.785 trillion (US$422 million) while life insurance companies made settlements of VND7.7 trillion (US$370 million) in 2011. Vietnamese Insurers must better match their risk portfolio to customer obligations as the insurance market continues to grow.
As part of the national government’s upcoming insurance development strategy, standby funds held by domestic insurers will be required to double by 2015 and increase by 4 and a half times by 2020. Vietnam insurance companies will thus be required to improve their capital positions gradually over the next few years to meet evolving compensation and insurance payment obligations to policyholders. In addition to improving capital levels and business standards, Vietnam’s insurance sector will also be called on to double its tax contributions and bring more innovative products and services to market, including export insurance and micro insurance schemes, which will be piloted over the next few years in an attempt to increase coverage rates amongst the country’s sizeable rural population. As fewer than one in ten Vietnamese currently have coverage, Vietnam’s potential for further insurance growth and development remains one of the best in the Asia Pacific region. Insurance companies looking to succeed here will need to tackle new regulatory efforts, growing competition and significant operating challenges. The country’s emerging middle-class, whose demands for products like health and travel cover are rising, should however present an attractive business opportunity going forward.
Insurance companies mentioned
Chartis is a leading general insurance company with over 45 million policyholders in 160 countries worldwide. With more than 90 years experience in the insurance industry, and a range of progressive products, Chartis aims to help clients comprehensively manage risk.