Posted on Jul 22, 2011 by Sergio Ulloa
New figures released this week by the Vietnamese government shows that, despite an economic slowdown, the Southeast Asian country's insurance market grew by 20 percent cumulatively in the first half of the year.
The Vietnamese Ministry of Finance's Insurance Supervisory Authority reported that total insurance premiums in the first half of 2011 reached VND17.4 trillion (US$826.8 million). Non-life insurance policies accounted for more than VND10.1 trillion (US$482 million) worth of premiums, a 22 percent increase over the same period last year. Life insurance meanwhile experienced a 16 percent growth rate in the first six months of the year. Although the life insurance sector contributes less to the industry's total premiums, it has shown more consistent growth in recent years.
The Insurance Supervisory Authority credits the development of new innovative products in the Vietnamese life insurance market, like joint insurance, with the continued development of the sector. Joint insurance is a life policy written in the names of at least two persons whereby benefits would only be paid on the occasion of the first death claim. The insurance authority claimed this new product clearly met some nascent domestic demands as the ratio of policyholders who would cancel their joint insurance policies was reveled to be much lower than that of other kinds of insurance.
The insurance industry in Vietnam has benefited so far this year from the increasing involvement of brokerage companies in the market, particularly foreign-lead enterprises. They have been credited with introducing both better business practices and more innovative promotion efforts which has lead to increased professionalism in the market. Vietnam's insurance authority revealed that the total amount of premiums now being brought in by insurance brokers has risen by over 80 percent in the first half of the year to VND1.8 trillion (US$86 million).
The Insurance Supervisory Authority Director, Trinh Thanh Hoan, told local media that he believes the domestic insurance industry will be able to maintain its current growth rate throughout the rest of year and has targeted a year end total insurance premiums collected of VND35.3 trillion (US$1.68 billion). This would represent a 19 percent increase of last year's VND30.8 trillion (US$ 1.57 billion) totals. Non-life insurance would be expected to make up roughly VND20 trillion (US$952.4 million), between a 23 and 25 percent increase.
To realize these ambitious targets, Mr. Hoan outlined what Vietnamese insurance companies would need to achieve, including increasing their operating capacity to meet solvency requirements, further research and development into new products, restructuring and consolidating business to retain investors, and utilizing new technological developments. Current rules stipulate that local insurers are not permitted to retain risks exceeding 10 percent of their paid-in capital. Many Vietnamese insurers have small capital bases and the Insurance Authority expect more companies to list on the country's stock exchanges to raise capital and to become financial holding companies.
Vietnam's insurance market has been growing at a rapid pace in recent years, with total direct written premiums increasing around 20 percent annually since moves were first made to liberalize the industry following the country's accession to the World Trade Organization (WTO) in 2007. Prior to these developments, domestic insurers were treated much more favorably than international insurers and the market stagnated as a result. When considering its' true size however, the insurance market in Vietnam remains underdeveloped and small in comparison to many of its Southeast Asian neighbors.
Starting on 1 July 2011, the amended Law on Insurance Business took effect in Vietnam to further codify and standardize business practices. While the law is expected to tighten regulation on multinational companies and brokers offering cross-border insurance services it will also finally enable foreign non-life insurers to establish branches in Vietnam. Previously overseas companies could only participate in the non-life market through joint venture operations with a local firm or through licensing their business off. The Insurance Authority is also looking to introduce a raft of additional changes to better police fraud and to improve their training and recruitment efforts to ensure the industry can grow both larger and smarter.
According to A M Best's report, 'Vietnam's Insurance Market Awakening to Further Change'
, there are currently 29 insurance companies (mainly domestic firms) operating in Vietnam's non-life market, with more expected to enter due to the potential for growth. However, the intense competition, high operating costs and an increased frequency and severity of insured losses has made profitable underwriting difficult to achieve in the current environment. As the market has opened up, the 4 big, partially state-owned non-life insurers have been losing market share to smaller largely-foreign competitors who have implemented aggressive growth strategies at the expense of cost-effective underwriting.
The life insurance industry in Vietnam remains less crowded than the non-life sector, with only 12 registered insurers operating in the country. Foreign insurers dominate this market, and have brought with them substantial capital, expertise and innovative distribution channels to sell a largely unknown product to the Vietnamese people. Due to the young-leaning demographics and low-per-capita income however, demand for life insurance and some other conventional insurance products has remained moderate. This is where innovative products like microinsurance could find significant market share
Vietnam's continued demographic and economic development will generate further awareness and demand for insurance. Although the considerable growth potential there, any foreign insurer looking to establish a presence in Vietnam's insurance market will need to comply with tightening industry regulation, strong competition and operating challenges common to a developing economy in order to prosper.