New product to insure success

The new product cost remains a major concern to local banks

The Bank for Investment and Development of Vietnam’s insurance wing, BIC, has teamed up with Gras Savoye Willis Vietnam to introduce a new insurance package for banks and financial institutions.
The package includes the bankers blanket bond which covers a bank in the event of losses due to illegal acts by its employees or individuals external to the bank.
It also offers professional Indemnity, insurance for the director and officer and initial public offering liability.
According to Nguyen Dai Lai, vice head of the State Bank’s Banking Development Strategy Department, applying these products and standard practice for international banks would demonstrate the professionalism of domestic banks.
“However, with the domestic banking industry in the earliest stages of development, these products may only become popular in 10 years time,” Lai said.
“As Vietnam’s banking sector develops and employs better corporate governance practices, the demand for this kind of insurance will increase over time,” said James Quirk, Gras Savoye Willis’ managing director of the Asia Credit and Political Risk Division.
According to the general secretary of the Vietnam Insurers Association, Phung Dac Loc, these ‘sophisticated’ insurance products require the development of the whole economy, not only the banking sector.
“Generally, the development of the insurance industry follows the development of the whole economy.
“Vietnamese enterprises, including banks and financial institutions, are not yet in the habit of using insurance services to cover risks,” said Loc.
Insurance broker AON Vietnam said that to date, few foreign banks in Vietnam had purchased the products.
From the perspective of a domestic bank, Nguyen Thanh Toai, vice general director of the Asia Commercial Bank (ACB) - the largest domestic joint stock bank in terms of assets, said the high cost of these products would likely be the main hurdle for financial institutions in the short-term.
“At the moment, local banks’ incomes are still low compared to banks in other countries. Thus, cost would probably be the first criterion when they consider when buying insurance policies,” said Toai.
At present, domestic banks’ revenues come mainly from credit services, accounting for 70-80 per cent on average.