Foreign companies have managed to dominate Vietnam’s life insurance market and the trend shows no signs of reversing.
Vietnam insurance market is one of the fastest growing in the world, witnessing double digit growth over the last few years and expected to see similar growth into the foreseeable future, at a CAGR (Compound Annual Growth Rate) of around 22 per cent during 2011 to 2014.
Although premium incomes remain small, the market is attracting a steady stream of new foreign entrants. The lure is the prospect of immense growth potential driven by the country’s large, youthful population and an economic growth rate second only to China.
With limited insurance penetration and huge potential, Vietnam insurance sector offers ample opportunities for international insurers. Unlike the quietness of the non-life sector in 2011, the life market was quite active with the arrival of the two foreign life insurers - Generali Life from Italy and Vietinbank-Aviva from the UK, bringing the total number in the country to 14, of which BaoViet Life insurance is the only domestic player with a market share of over 30 per cent.
In December 2011 American International Assurance (AIA) made new inroads into Vietnam’s emerging life insurance market, opening a fully-fledged subsidiary to step up its operations nationwide. Bao Viet Life is reported as currently being the Number One player in the life insurance sector, followed by Prudential and with Chinfon-Manulife and Bao Minh CMG jostling for third place.
Vietcombank, the local banking giant, has formed a 50-50 joint venture with Cardiff, under the name Vietcombank-Cardiff Life Insurance. But its market share is so far negligible, at less than 3 per cent according to a report from the Association of Vietnamese Insurers (AVI).
Vietnam’s life insurance market is attractive to foreign life insurers and many are said to be in a long queue applying for licences. Mr Sergio Balbinot, Managing Director of Generali Group, said: “Our licence gives us fresh impetus in our expansion strategy in countries with high growth potential.”
Generali’s move into Vietnam will increase the number of Asian markets in which it operates to eight, with the country joining China, Hong Kong, India, the Philippines, Indonesia, Thailand and Japan. Mr Balbinot said that although Vietnam is second only to China in terms of GDP growth, life insurance penetration in the country stands at just 0.7 per cent of GDP. “In other words, we are in a market offering huge opportunities,” he said, adding that Vietnam has a population of 87 million with an average age of 27.
On Vietnam’s overall prospects, Mr Michael Hung, Global Banking Director of HSBC Vietnam, probably summed it up best when he said in recent interview: “Vietnam shares many of the advantages that were previously recognised in China, such as a large, young, relatively cheap workforce, political stability, and numerous efficiencies and opportunities to be unlocked in the economic transition from central state control to market-orientated.”
Despite high inflation and economic difficulties in 2011, Mr Phung Dac Loc, AVI’s Secretary General, said that revenues from premiums in the non-life insurance sector were estimated at around VND21 trillion ($1.05 billion), for an annual growth rate of 25 per cent. The figure for life was VND16 trillion ($800 million), an increase of 17 per cent over 2010.
With idle funds having little opportunity to be invested in the stock market or the real estate market and with the ongoing economic difficulties, people think about saving money for the future and this creates an opportunity for life insurance to serve as a tool to lure medium- and long-term capital for Vietnam’s economic development. According to AVI, the total value of new business in the life insurance market in 2011 is estimated to have been VND4,683 billion ($234 million), or growth of 31.8 per cent over 2010, while growth in 2010 was only 25 per cent against 2009.
Referring to the role played by foreign insurers, insurance analysts are of the opinion that they have played a positive role in the country’s insurance industry in general and in the life insurance industry in particular over the last 10 years. AVI’s Mr Loc said: “The domination of foreign life insurers in Vietnam is inevitable, as success in this industry requires not only money but also technical expertise, which is a clear advantage of foreign insurance giants.”
Competition is hot among entrenched players, such as the State-run Bao Viet, the UK’s Prudential, the Taiwanese-Canadian joint venture Chinfon-Manulife, and the Australian-Vietnamese joint venture Bao Minh CMG. Mr Huynh Thanh Phong, Regional Managing Director of AIA Group, remarked: “It is clear that a large amount of capital mobilised through investment by life insurers and from the life insurance policy holders has been poured into Vietnam’s economy over the last ten years, and foreign life insurers have also played a role, especially in terms of training human resources.
Total employee numbers at foreign life insurers are estimated at 7,000, accounting for 38.8 per cent of the 18,000 people employed in the insurance industry as a whole.” Meanwhile, Mr Barry Stowed, CEO of Prudential Asia, said that Vietnam is a large market and the most successful among the giant’s 13 markets in Asia. “This is why it is reasonable for us to strengthen our financial commitment to support the community here,” he said.