WTO helps to insure sector’s future

The insurance sector is benefiting from broader opportunities to develop. Statistics released at an workshop in Hanoi last week revealed that in 2007, a year after Vietnam joined the WTO, non-life and life insurance premium turnovers reached VND8,359 billion ($506.6 million) and VND9,458 billion ($573.2 million), up 31 per cent and 12 per cent on-year, respectively. The average insurance premium per capita also soared to around VND208,000 ($12.6), triple 2002’s numbers.

Insurers’ total assets and equity capital in Vietnam respectively rose 46 per cent and 112.5 per cent last year to $3.52 billion and $904.1 million. Insurance companies invested around $2.67 billion in the economy last year, a 46.5 per cent on-year jump, and paid $389.2 million for claims.

The number of insurance companies has doubled in the last five years, hitting 40 in 2007 against 20 in 2002. Around 800 insurance products have been introduced in Vietnam so far, according to the Ministry of Finance (MoF).
Participants at the workshop agreed that the local insurance sector had maintained its growing momentum after Vietnam’s WTO entry, and more opportunities were opening for insurers’ robust development.

Huge potential
Association of Vietnamese Insurers’ general secretary Phung Dac Loc said the country’s fast economic growth would create conditions for key industries to develop strongly, which would be followed by rising insurance needs.
Nguyen Van Dinh, head of the University of National Economics’ Insurance Department, said the high economic growth rate offered golden opportunities for insurance companies.

Dinh said rapidly rising foreign and domestic investment also created fundamentals for the insurance sector to develop new products, including construction and asset insurance, to suit domestic and foreign investors.
“People’ increasing awareness of the necessity of insurance in Vietnam will also increase the number of potential insurance clients in the coming time,” Dinh said. He added people’ better living standards would also trigger demand for life insurance products.

Industry observers also point to the government’s policies on restructuring state-owned enterprises (SOEs) and reducing state subsidy at these businesses, saying numerous opportunities are opening for insurers to develop new products.

Loc said the SOE equitisation the process would demand more asset insurance products for business executives to avoid risks of asset losses after equitisation, while people working in the sectors subject to reduced state subsidy would have to think seriously about buying healthcare insurance policies to protect themselves. “Better regulations and laws on consumer protections will in addition create demand for insurance products for careers, assets and financial risks to emerge,” Loc added.

Challenges ahead
Despite favourable conditions brought about by the country’s WTO entry, insurers are expected to face tougher challenges associated with the market opening following Vietnam’s integration roadmap. “Competition will be fiercer,” said Loc. Trinh Thi Thu Huong, deputy head of the Foreign Trade University’s Economic and International Business Department, said WTO rules allowed foreign insurance companies to offer certain insurance products in Vietnam without having to set up offices in the country, meaning increased unhealthy competition between local-based insurers and foreign rivals.

“Vietnam-based companies cannot distinguish who is who in the market and which insurance products they [overseas insurers] are offering in the [Vietnamese] market. Locals must pay taxes while foreign rivals do not. This could be a difficult job for insurance companies in Vietnam,” warned Huong.

The shortage of skilled staff and experienced managers is also posing a great challenge on insures in developing and marketing new products. Furthermore, insurance companies are having to cope with a brain-drain as their skilled labourers are attracted by their competitors or employers in other sectors.

“This would be a big challenge for the insurance sector which is not easy to solve,” Dinh said, adding that not only small firms, but big players like Bao Viet also faced the same risks. Hoang Trong Minh, an official from the Ministry of Science and Technology observed the weak sales networks and underdeveloped information infrastructure were hindering many Vietnamese insurers’ successes.

To survive the tough competition, many insurers have tried to offer lower prices and higher commissions, while failing to improve post-sale customer services. “This is unfriendly competition,” Loc said, adding that compensation processes were often lengthy due to complicated paperwork.

In order to make the insurance sector healthier, Loc advised the government to build up a sound technical barrier, without violating the WTO regulations, for insurers’ establishment and operations in Vietnam. “This will help identify the best domestic and foreign investors which commit to long-term and sustainable development of Vietnam’s insurance industry,” Loc said. He also suggested the government complete insurance business laws soon to suit WTO commitments.