Insurance business law amended

The law amending and supplementing some articles of the Insurance Business Law was approved by the 12th-legislature National Assembly in November 2010 and will take effect on July 1, 2011.

The Ministry of Finance and the Ministry of Justice said that the amendments and supplements were made to make the law compatible with the requirements of international integration and other related laws.

The Insurance Business Law has been effective for more than 10 years and the number of insurance businesses in Vietnam increased from 14 in 2000 to 50 in 2010. The world’s leading insurers are now present in Vietnam. The total amount of collected insurance premiums increased tenfold at an annual rate of 27 percent from more than VND3.05 trillion in 2000 to VND30.2 trillion in 2010, accounting for about two percent of the country’s GDP (Gross Domestic Product). The total amount of money invested by insurance companies in the Vietnamese economy grew by 18.5 times from VND5 trillion in 2000 to nearly VND92.81 trillion in 2010. For 10 years, businesses and individuals received more than VND55.76 trillion in compensation from insurance companies, which helped them overcome difficulties, stabilize production and lives.

However, the Vietnamese insurance market still shows signs of unhealthy, unfair competition. The awareness of organizations and individuals about insurance remains limited; the rights and legitimate interests of the insuree are not yet protected in an optimal manner. Those limitations exist because the domestic insurance market is still young and the legal framework on insurance business remains inadequate and unsuitable with international practices. Insurance services are a risky and sensitive business field, therefore insurance companies must be operational according to the market mechanism but under the management and supervision of State authorities concerned.

For the above reasons, the Insurance Business Law has been amended and supplemented. The amendments and supplements which have been made cover three groups of matters such as cross-border supply of insurance services, overseas branches of non-life insurance companies, insurance business classification, and compulsory reinsurance.

Cross-border supply of insurance services allows foreign insurance/insurance brokerage companies which do not have any legal entity in Vietnam to sell insurance and collect insurance premiums from foreign invested companies and individuals working in Vietnam (the Insurance Business Law does not mention this matter). As committed with the World Trade Organization (WTO), Vietnam has to allow foreign insurance companies to provide cross-border insurance services. Therefore, the Insurance Business Law has been amended to allow organizations and individuals, which want to be insured, to buy insurance from insurance companies operational in Vietnam; foreign invested companies and individuals working in Vietnam to be insured by insurance companies operational in Vietnam or to use cross-border insurance services; foreign insurance/insurance brokerage companies to be operational in Vietnam in the form of companies limited.

The Insurance Business Law stipulates that there are two types of insurance companies with five life-insurance operations and 11 non-life insurance operations. In fact, insurance business activities have developed rapidly and some new insurance operations have occurred such as retirement insurance and health insurance. Under the Insurance Business Law, health insurance and accident insurance are classified as non-life insurance, but according to international practices, those are health insurance. Therefore, the Insurance Business Law has been amended and supplemented in accordance with international practices.

The Insurance Business Law stipulates that before providing reinsurance services overseas, insurance companies have to transfer part of the liability to a domestic reinsurance company. However, under the Vietnam-US Bilateral Trade Agreement (BTA) and commitments with the WTO, Vietnam is not allowed to stipulate compulsory reinsurance. Therefore, the Insurance Business Law has been amended to eliminate the compulsory reinsurance mechanism while at the same time stipulating that insurance companies can reinsure other insurance companies including foreign insurance companies or organizations which provide overseas reinsurance. To ensure financial safety for the Vietnamese insurance market, it is stipulated that foreign insurance companies and organizations which provide overseas reinsurance must obtain an internationally recognized credit rating.

The Government and the Ministry of Finance will promulgate sub-law documents guiding the implementation of the amended, supplemented Insurance Business Law. – VEN