Prospects still cloudy for bancassurance

Slated rules on insurance products may confuse banks, some say, photo Le Toan

On January 18, the National Assembly ratified the amended Law on Credit Institutions which will come into force from July, with the exception of several clauses set to take effect from 2025.

Along with this, the amended law adds “attaching non-compulsory insurance items to the provision of banking products and services” to the list of prohibited acts by banks.

Can Van Luc, chief economist at state lender BIDV, said the solution aimed to ensure consistency with regulations in a circular guiding the Law on Insurance Business enacted by the Ministry of Finance (MoF) with the prime target of safeguarding consumer interests following complaints from customers last year.

“This new point shall directly affect bancassurance business, one of the rosier non-interest income sources of banks that will likely eye a decline in their revenue from this segment in the short term, mainly regarding non-compulsory insurance products,” Luc said.

Tran Minh Hai, director of Hanoi-based law firm Basico, said that prohibiting the sale of non-compulsory insurance products to the provision of banking products and services’ would mean that banks selling insurance products would effectively end.

“It can be understood that banks are prohibited from forcing customers to buy insurance products before giving them a loan. This new point, however, might upset bank operations. For instance, for years when lending cars, selling liability insurance, albeit non-compulsory, has become a practice. This new regulation might confuse banks. It requires relevant management agencies to clarify the content,” said Hai.

He also noted that banks selling insurance products is commonplace globally, but banks need to clearly explain their insurance products to the customers to avoid them misunderstanding the products.

Tran Thi Khanh Hien, head of Research at MB Securities, said that bancassurance being closely controlled would slow income growth at banks compared to 2019-2021, particularly for banks who eyed a high-income ratio from this business segment like Techcombank or VIB.

In its new report about insurance business prospects for 2024, SSI Securities, however, estimated a rebound of 7 per cent in the premium revenue in 2024, yet the profit growth prospects might not rise correspondingly as a low-interest environment continues to challenge the sector’s growth.

In light of the report, a surge in the investment portfolio and positive movement in the stock market might not be enough to offset a sinking mobilisation rate.

The financial income of listed insurers and re-insurers in 2024 is, therefore, forecast to be not as favourable as in 2023 when they posted 34 per cent jump on-year.

The SSI report forecasts an increase of 5 per cent, touching $6.9 billion in the life insurance premium revenue in 2024.

According to the General Statistics Office, in 2023 total premium revenue shed 8.3 per cent on-year to $9.57 billion, in which the premium revenue from the life insurance segment sank 17 per cent on-year, and that from the non-life segment inched up 2 per cent.

Of note, the MoF’s inspection results of four big insurers in 2023 show that the bancassurance channel accounts for half of contract volume and new life insurance premium revenue. However, due to the factor of apparent misunderstanding, after the first year of the contract signing, the rate of bancassurance contract cancellation by customers reached 70 per cent.

Bancassurance difficulties softened by profit results Although a decline in the sale of insurance products through banks has materialised in recent months, the sector remains a lucrative avenue for banks.

Banks juggle bancassurance quandary Some Vietnamese commercial banks have reported a dramatic dip in their bancassurance sales for the first half of the year as the sector navigates controversies and a historically low number of active life insurance contracts.

Bancassurance changes in the name of sustainability Building full infrastructure for bancassurance is vital to improve the customer experience. Le Hoai An, a banking consultant and trainer at Integrated Financial Solutions, talked with VIR’s Hong Dung about the new regulations on bancassurance operations in Vietnam.