Insurance groups take on legal switch

January 25, 2023 | 14:05
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Entering 2023, insurance companies are expected to move into a new era as the legal environment for the sector is refined.
Insurance groups take on legal switch
Businesses will be able to further promote their micro-insurance offerings, photo Le Toan

According to the latest report from the Ministry of Finance, as of the end of 2022, there were 79 insurance businesses in the insurance market, with total assets seeing an increase of 14.51 per cent compared to 2021.

An SSI Research industry report on insurance published on January 8 calculated that in the first nine months of 2022, insurance premium revenue was over $7.5 million, up 17 per cent over the same period, of which life and non-life insurance premium revenue increased 16 and 19 per cent, respectively.

However, the growth rate slowed slightly at the end of the year, with total original premium revenue reaching almost $10.7 million as of December 12, 2022, up 15.1 per cent on-year. This is the slowest growth rate since 2013.

Life insurance premium revenue growth was lower than expected. In the first nine months of 2022, new premium revenue increased by 6 per cent on-year, and total premium revenue climbed by 16 per cent. Both are much lower than the averages during and before the pandemic, SSI said.

Non-life insurance premium revenue surged 19 per cent in the first nine months of 2022, the highest annual growth rate since 2011.

“The growth rate of non-life insurance premium collection is often associated with GDP growth. In the first nine months of 2022, the retail segment grew strongly compared to the same period the previous year due to the absence of social distancing in 2022,” the report added.

Motor insurance premium revenue and personal accident/health insurance expanded at the highest rate in the past five years, 17 and 30 per cent, respectively, over the same period last year.

The report emphasised that competition was still fierce in both life and non-life insurance. Personal accident/health insurance is considered to have great growth potential in the long term, as well as having better returns than motor vehicle insurance.

“Meanwhile, the race for market share will continue to be fierce among the top three life insurers (BVL, Manulife, and Prudential),” SSI explained. “In terms of profits, investment and insurance operating profits were affected. Although premium revenue grew relatively well, insurance enterprises’ profit decreased after tax.”

In 2023 and in the longer term, the Law on Insurance Business 2022 (LIB) officially coming into effect is the factor that has the biggest impact on Vietnam’s insurance businesses.

Insurers assessed that the law aims to enhance transparency, standardise information on insurance products, and promote efficiency and sustainability in business activities.

“The LIB requires insurance companies to provide full information to customers and strengthen the requirements on the advisors’ responsibilities,” said Tina Nguyen, CEO of Generali Vietnam. “These regulations will help better protect customer interests, and ensure the improvement of the quality and professionalism of the consulting team’s activities, thereby enhancing customer trust.”

Likewise, the SSI report assessed that the new law would significantly impact the industry.

“With the new LIB, we believe that insurance businesses will promote their micro-insurance activities. We’ve also noticed that a number of businesses have been actively implementing these products in 2022, and will likely continue to roll them out in 2023,” noted the report.

SSI Research forecasted non-life insurance premium revenue growth to be lower than 2022, at 10-12 per cent, as the claim ratio comes under pressure due to high inflation and rising prices of goods, supplies and medical expenses, while insurance fees are likely to remain stable under competitive pressure.

Meanwhile, life insurance’s total premium revenue is expected to grow 16-18 per cent, higher than in 2022.

“Profits of non-life insurers are expected to fluctuate strongly from quarter to quarter. However, with a low comparative basis in the second and third quarters of 2022, we believe that profit growth over the same period will be higher in 2022,” the report said.

Experts assessed that motor vehicle and personal health insurance would continue to grow rapidly in 2023. “Personal health is the area that brings in the highest premium revenue, with the total revenue surpassing motor vehicles in the last two years. People’s healthcare needs are increasing, especially after the pandemic,” Do The Vinh, CEO of online app ibaohiem noted. “The deployment of digital social insurance applications has partly helped to clean up the health insurance market, as insurance companies can now quickly verify the status of participants.”

This proves that having a common database is necessary for accurate risk assessment, avoiding dishonest declarations, and creating fairness among insurance participants, Vinh added.

In terms of other bright spots, Vinh said that 2023 would be a thriving year for distribution channels. However, the legal corridor changes might pose challenges.

“Insurance companies will pay more attention to cooperating with new distribution channels, such as institutional agents, general agents, and technology companies, in addition to traditional channels such as individual agents and bancassurance,” Vinh said. “However, challenges may arise as the amended LIB has had many changes. This could have a huge impact on product distribution channels.”

Kent Wong, Legal committee chairman European Chamber of Commerce in Vietnam
Insurance groups take on legal switch

Vietnam’s non-life insurance segment will continue to see market growth, underpinned by global economic headwinds, positive regulatory developments, and rising domestic interest rates due to tightening monetary policy. This will all benefit investment income.

Non-insurance premiums recovered strongly in 2022, rebounding from the pandemic period with annual growth of 13.6 per cent. Prospective growth is likely to be supported by structural economic headwinds from around the globe that will continue to benefit Vietnam’s economy. Currently, health insurance and motor vehicle insurance account for a large proportion of total non-life insurance premium revenue. These two fields will continue to grow strongly in 2023.

Health insurance, the largest non-life product in Vietnam, accounted for one-third of total premiums in the first nine months of 2022. In the long term, health insurance will have the largest growth potential because Vietnam is experiencing rapid population ageing. Elderly people have significantly higher healthcare costs than young people. According to the United Nations Population Fund, this elderly rate could reach 25 per cent by 2050.

The high growth rate of the middle class is also an important long-term growth driver for health insurance demand. According to a report by HSBC in September 2022, Vietnam is forecast to have 48 million people, or nearly half of the population, with a daily income of over $20 by 2030. Vietnam also boasted the world’s highest GDP per capita growth over the past 10 years.

Motor vehicle insurance is the second largest non-life product in Vietnam, accounting for 26 per cent of total premiums in the first nine months of 2022. According to the Vietnam Automobile Manufacturers Association, auto sales have recovered strongly. Sales figures for the period reached almost 265,000 vehicles, up 56 per cent over the same period in 2021 and 21 per cent more than in 2019.

In the long term, the growth prospects for motor vehicle insurance are positive as car ownership in Vietnam remains low, while rising incomes will continue to drive the demand for cars in the future. The number of cars per 1,000 people in Vietnam as of 2019 is 21, while the country’s per capita GDP is $3,425. Based on data from other countries, automobile consumption in Vietnam will likely rise when GDP per capita hits $5,000.

The new Law on Insurance Business, which came into effect in January, could lead to increased participation of foreign players and potentially greater competition in the market over time. The advantages of increased foreign participation include knowledge transfer, healthier competition, and additional financial flexibility. These regulatory changes should strengthen the market’s financial resilience and promote transparency of risks.

Aside from that new law, the insurance market needs more transparency to overcome unfair competition and instances of fraud for sustained development. Despite a positive outlook, the insurance market also faces many challenges, including unprofessional distribution channels of insurance agents and a lack of cooperation in information sharing among insurers to combat fraud.

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