Mutual insurance law ready to review

Mutual insurers have the high-risk farm sector in mind

The ministry plans to issue the new regulations this year, Le Song Lai, deputy director of the ministry’s Insurance Department told Vietnam Investment Review last week.
“The meeting will focus on issues such as legal capital, operating fields and founding members,” Lai said. “The most difficult matter is how to decide on a suitable level of legal capital for a mutual insurance company in Vietnam.”
Lai said mutual insurance would be encouraged firstly in the high-risk farming sector where almost no insurer, except Groupama, dare to operate. Only around one per cent of livestock and plants in Vietnam are insured, according to the ministry.
“We will work with the Vietnam Farmers’ Association and other aqua-product producers in our search for primary members before extending this kind of business to other sectors,” Lai said.
Lai said mutual insurance companies should be allowed to operate in both the life and non-life sectors.
Mutual insurance is still a new form of business in Vietnam, though it has been successfully implemented in many other countries.
Only state-owned and stock insurance companies that get capital from investors, operate in the Vietnamese market.
Investors in stock insurance companies generate capital by investing the funds they derive from their policy-holders. Mutual insurance companies, on the other hand, derive capital directly from people who take out policies. Policy-holders are then given a degree of ownership in the company.
US mutual insurance companies, New York Life International and Liberty Mutual, which have representative offices in Vietnam, have been helping the ministry draft the new regulations.
A New York Life representative told a recent seminar that mutual life insurance firms had three major advantages over normal stock insurance companies: a mutual company was never in danger of being taken over by other insurers like a stock company can be; a mutual insurer was more likely to have a long-term strategy and because of this, it was able to find the most beneficial terms for further investment.
However, Lai said this type of insurance was unfamiliar terrain for Vietnam’s 40-year-old insurance market.
“So it will need support policies and preferential treatment, on tax and operating capital, for example, to ensure its long-term development,” he said.