Despite macro-economic difficulties, the impressive growth of the insurance industry in 2011 gives good reason for continued solid performance in 2012.
The tightened monetary policy introduced in 2011, aimed at containing inflation and reducing public investment, has had an effect on the socio-economy in general and the insurance industry in particular. Turmoil in important markets such as real estate and the stock market also haven’t helped, as it narrowed the investment opportunities available to insurers.
According to Mr Nguyen Truong Giang, CEO of PTI Insurance, the difficulties the economy faced in 2011 also affected the business performance of insurance companies. The economic situation saw public spending limited, a number of projects being postponed and companies cut their spending, resulting in the introduction of more insurance products becoming problematic. It also means that competition between insurance companies became fierce, especially in terms of service fees.
Despite the hardships, insurance companies and insurance advisory firms made every effort to consolidate and develop the country’s insurance market. Mr Ton Tung Lam, CEO of BIDV Insurance Company (BIC), believes that insurance companies, in general, adopted genuine solutions to overcome the difficulties. “The market has seen qualitative changes such as an improvement in the State management of the insurance business,” he said. “New policies introduced by the government and the Ministry of Finance (MoF) have helped companies exploit new segments, such as agricultural insurance and export credit insurance, paving the way for the development of the insurance market in general.”
In terms of enterprise performance, insurance companies are focusing on improving the quality of customer services and boosting cooperation with companies in the market. This was reflected in the fact that unhealthy competitive pressure has been gradually falling. The efforts of enterprises, according to Mr Phung Dac Loc, General Secretary of the Vietnam Insurance Association, was the main factor in them recording impressive results in 2011. He estimated that growth in the insurance industry as at the end of 2011 was 20 per cent compared to 2010.
In particular, the sale of non-life insurance products in 2011 was estimated at VND21,500 billion ($1.02 billion), an increase of 25 per cent over 2010 but 3 per cent lower in terms of growth over 2010. Meanwhile, the sale of life insurance was estimated at VND16,000 billion ($761.2 million), up 17 per cent compared to 2010 and 2 per cent higher in terms of growth over 2010.
The insurance industry invested over VND100,000 billion ($4.76 billion) into the national economy during 2011, expressing its important role in allocating capital for economic development. Pre-tax profits in the industry were estimated at over VND10,000 billion ($476 million), with VND2,500 billion being contributed to the State budget and nearly VND2,000 billion being paid as value added tax (VAT).
Competition for survival
This year, despite the fact that problems in the economy will remain in place, new opportunities are certain to come. This is why insurance companies need to make greater efforts to maintain growth and profits while controlling payouts. Since the Law on Insurance Business took effect on July 1, 2011, foreign insurance companies now provide cross-border insurance services in Vietnam.
The law stipulates that foreign insurance companies do not need to set up branches in Vietnam but are allowed to provide insurance services. For this reason the number of insurance companies is getting larger every day and competition will become fiercer in 2012. But according to Mr Giang from PTI Insurance, this presents a major opportunity for insurance companies. “Those with a good business strategy will have a solid foothold in the market,” he said.
Meanwhile, Mr Tung welcomed the fact that regulations and policies have gradually improved. He believes that insurance companies are now exploring new segments and this brings new opportunities to the insurance market. Insurance companies will also focus on customer services as they consider this to be a differentiator as regards competition.
They will also continue to strengthen risk management systems to ensure efficient operations and meet the requirements of international reinsurance companies, especially in terms of the risk from natural disasters. “Another trend that will be seen in 2012 is that local insurance companies will accelerate the search for strategic foreign partners to strengthen their management capacity and adopt high technology, with the aim of moving towards international standards,” said Mr Tung.
Foreign insurance companies are also optimistic about the opportunities in 2012. Mr Jung Seop Hyun, CEO of Korea Life Insurance, believes that challenging times present opportunities for insurance companies. “When the macro-economy and the financial market are unstable, each family or individual needs to be more careful in their financial planning,” he told VET. “This will be a precious opportunity for insurers to attract customers.” In order to seize the opportunities, companies need to provide more products and expand their distribution channels. “2012 is expected to be a boom year for life insurance products, to meet the real needs of customers,” Mr Hyun said.
Given the current context, the insurance industry is forecast to maintain its growth momentum into 2012, with an increase of approximately 18 per cent in life insurance and 28 per cent in non-life insurance. But there have been suggestions that the insurance industry needs a strong restructuring process, as in the banking sector, to create a healthy and transparent market based on regulations on financial safety standards.
MoF should also introduce higher standards on financial security to help the market in general and customers in particular to identify potential weak companies. This is very important and it should be done right now to create favourable conditions for the insurance industry to perform better.