Errant insurers get rapped on knuckles

August 17, 2010 | 10:00
A 400-day investigation and two years’ hot debate has resulted in 19 non-life players being slapped with financial penalties due to competition restriction violations.

Bao Viet Non-life is one of many insurers left red-faced by the investigation

Last week, a three-day testimonial session held at the Vietnam Competition Agency ended with financial penalties to the 19 insurers amounting to 0.025 per cent of their revenues in 2008. Of the violators, three are foreign-backed, the South Korea-invested joint venture SamSung Vina Insurance, French firm  Groupama and Taiwan’s Fubon.

In 2008, 15 non-life insurers signed an agreement to lift motor-vehicle insurance fees to a minimum of 1.56 per cent on insurance payout from around 1.3 per cent. For instance, if an insurer committed to pay a claim of $100, they would collect the premium of $1.56. In the following week, four other non-life insurers signed the agreement lifting the total number of players to 19.

Bach Van Mung, head of the inter-ministerial Vietnam Competition Authority, said the penalties were fair and would serve as an alarm bell to enterprises rather than a big financial body-blow.

The scale of penalties, according to the Competition Law, could be from 0 to 5 per cent of a firm’s revenue. The market leader in terms of revenue Bao Viet Non-life bears largest penalty of VND553 million ($29,000).

Tran Phan Viet Hai, deputy general director of SamSung Vina Insurance, said that without raising insurance premiums, local non-life insurers might not be able to pay back claims in the future. “Thus, if we look at this case from opposite angle, it was positive to the market,” he told VIR.

Back to mid 2008, Association of Vietnamese Insurers’ (AVI) general secretary Phung Dac Loc at the non-life insurance Chief Executive Officer summit in mid 2008, held by AVI, stated that due to the unsound competition, from 2005 through 2008, local non-life insurers raced to pull down motor-vehicle insurance premiums to attract customers. This price competition led to huge losses to local non-life insurers in the motor-vehicle segment. Loc’s statement then prompted 15 insurers to sign the deal.

But for Vietnam Competition Agency, the investigator, and Competiton Authority, the decision-maker, they had only one angle with reference to the legal framework. It should be noted that during 2005-2008, the investigator conducted around 70 investigations on unsound competition. An official from its Antitrust Investigation Board told VIR that from international market point of view, the case was illegal.

“Working as Vietnam Competition Authority’s consultants, experts from Japan and the US sometimes stand on opposite points of views as the competition legal framework and practice in each country might be different. However, for this case experts from Japan and the US all agreed with our conclusions,” he said.

Within Vietnam Competition Authority, there are some competition experts from Japan and the US working under bilateral cooperation agreements between Vietnamese ministries and their peers in other countries.

At the testimonial sessions, a representative from Agribank Insurance Joint Stock Company admitted that the violations were the result of a lack of awareness over competition legal framework and was a valuable lesson to all players.

By Thai Hien

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