Vietnam’s insurance market has more potential for growth, both in the life and non-life sectors.
With a large population of over 86 million and relatively high economic growth of 7 per cent per year on average, Vietnam is seen as an attractive market for the insurance business.
However, according to the Ministry of Finance’s Insurance Management and Supervision Department, insurance revenue currently makes up just 1.7 per cent of GDP, or much lower than the global average of 8 per cent.
Despite the issues facing the country’s economy in general and the insurance industry in particular, premiums generated from non-life insurance still grew at over 20 per cent during 2011.
Business Monitor International, an international research agency, estimated growth at 20 per cent growth for Vietnam’s insurance market in 2011, while the Insurance Management and Supervision Department put growth at 22-25 per cent in 2011 and 12-15 per cent for life insurance. Total premiums were estimated at VND35.29 trillion ($1.7 billion), up 18.8 per cent over 2010, in which the non-life sector made up VND20 trillion ($1 billion) and life VND15.29 trillion ($764.5 million).
Over the long term the insurance industry has set a premium growth target of 15 per cent per year for the 2011-2020 period and revenue is expected to make up 3-5 per cent of GDP by 2020.
In 2011, licences for the establishment of insurance companies were issued to two companies in life insurance, one in brokerage and one in re-insurance. The non-life insurance sector was “quiet”, with no new licences.
One reason is the major policy change to open up the insurance market in 2012, in which foreign insurers are authorised to establish branches in Vietnam. As a result, foreign insurers may be considering their options: applying to establish a new insurance company or opening a new branch.
Mr Phung Dac Loc, General Secretary of the Vietnam Insurers Association, said: “It is clear that the criteria for establishing a foreign-invested insurance branch are more liberal than for setting up an insurance company.
Moreover, according to the Amended Law on Insurance that took effect on July 1, 2011, foreign-invested enterprises and foreigners working in Vietnam can provide cross-border insurance services, compulsory reinsurance, and so on.
In other words, the Law now creates a level playing field for all players and restricts any unhealthy competition between foreign and domestic enterprises.” Another advantage for foreign insurers is that the Prime Minister recently suggested that Vietnamese economic groups and corporations limit the establishment of insurance companies.
For the last few years quite a few leading foreign-invested insurance companies in the world and the region have been licensed in Vietnam. According to one report, the number of foreign-invested insurance companies increased from nine in 2003 to 23 by 2011, eleven of which are in life insurance and 12 in non-life insurance, the portion they contributed to the economy increased from 24.1 per cent to 55.4 per cent, the non-life insurance market share rose from 5 per cent to 15 per cent and the life insurance market share from 38 per cent to 71 per cent. Such figures suggest that foreign-invested insurance companies play an important role in the development of Vietnam’s insurance market.
As at the end of 2011 there were 29 insurance companies in total, 23 of which are foreign-invested companies and six domestic insurers. Of the 23 foreign insurers, 12 are non-life insurers: ACE, Chartis, Phu Hung, Cathay, UIC, Fubon, Groupama, Liberty, MSIG, Samsung Vina, Bao Viet and Tokyo Marine.
Four Vietnamese non-life insurers have foreign strategic stakeholders: Bao Viet, with HSBC holding 18 per cent, Bao Minh, with AXA from France holding 16.6 per cent, PetroVietnam Insurance Joint Stock Corp (PVI), with German insurer Talanx holding 25 per cent and the Oman Fund 18 per cent, and Global Insurance Company, with Germany’s ERGO holding 24.5 per cent.
When the market opens wider, especially with the Amended Law on Insurance having taken effect, greater pressure will be placed on domestic insurers to deal with fierce competition from leading foreign insurers. Domestic insurers will probably seek cooperative opportunities with leading foreign partners.
So far, almost half of all Vietnamese non-life insurers have foreign shareholders. Cooperation with foreign partners has helped them to upgrade their management skills and enjoy advanced technologies, bringing encouraging results.
The Amended Law on Insurance allows foreign-invested enterprises and foreigners working in Vietnam to use cross-border insurance services and insurance brokers in accordance with government rules.
Foreign insurance companies are quite sensitive to a change in this policy. Instead of queuing to submit applications to the Ministry of Finance, as in the past, it seems they are now reluctant to apply to set up foreign-invested non-life companies. “They appear to believe that non-life insurance branches will operate more effectively,” Mr Loc said. “The Amended Law on Insurance and a more open non-life insurance market in Vietnam will facilitate foreign insurers to become more involved. But fierce competition among them is also highly possible.”