Vietnam cleans up the insurance market

The draft law on the amendments and supplements to the Business Insurance Law has been completed before being submitted to the NA for approval at the forthcoming meeting from October 20 to November 27. The Ministry of Finance said that these amendments are necessary to heighten the responsibilities and mandates of state agencies, businesses and customers and create a healthy insurance market.

Representatives from the Vietnam Insurance Association said that the amendments and supplements to the Insurance Business Law will overcome any shortcomings in Vietnam’s insurance market, creating an equal playing field for all insurance companies.

Difficulties in bidding procedures

One of the articles to be amended this time is whether or not to apply bidding procedures on insurance products. Will the captive insurer model be prohibited or have stricter provisions. A representative from a major insurer in Vietnam said that if the regulations on providing insurance services have been carried out under proper bidding procedures, this would have helped Vietnam’s insurance market become healthier.

The draft law on insurance businesses stipulates that all groups and corporations will have to use bidding procedures in a public manner. Deputy Director of the Petro Vietnam Insurance Company (PVI), Vu Van Thang, said that every product should be put for tender as some domestic insurance companies do not have the capacity. Therefore, bidding procedures could cost more money and take longer.

However, an insurance expert emphasised that bidding procedures are necessary as at least 30 percent of insurance fees will be reduced. In addition, a public tender will offer opportunities for many other insurance companies to take part and more choice.

The National Assembly’s Economic Committee said that the activities of insurance services have not been regulated under bidding regulations over the past few years, leading to a lack of transparency in the insurance market.

Businesses’ insurance products under groups and corporations have been restricted in which insurer they can choose, leading to an unhealthy situation in the insurance market. Currently, Vietnam has more than 10 groups and corporations which have subsidiary companies (or captive insurers) offering insurance services. With the advantages of operating in their sectors, these captive insurers have more opportunities to get insurance contracts.

The re-insurance department at the PVI said that the establishment of specialised insurance companies by major corporations are an international practice and comply with Vietnam’s trend for international integration. Many big oil and gas companies in the world such as BP, Petronas, Talisman, Huyndai and Samsung also have subsidiary companies specialising in the insurance field.

A representative from PVI said that the use of captive insurers have helped groups recoup part of their investment capital and increase the efficiency of their operations.

Meanwhile, the Vietnam Insurance Association said that the captive insurance model have been applied by many financial institutions in developed countries. However, these groups are private and often offer reasonable insurance rates. In Vietnam, these corporations belong to the State.

An insurance expert calculated that the rates for insurance contracts of captive insurers have often been higher than in the market. Meanwhile, 90 percent of the total insurance fees from these companies have been re-insured with international reinsurance companies.

The PVI said that captive insurers are fully aware of the parent companies’ business operations and mechanism for providing financial support.

However, a major insurance company in Vietnam does not agree with PVI. The company said that before PVI, many companies such as Bao Viet and Bao Minh had assumed these tasks and they are internationally recognised as prestigious re-insurance companies.

The NA’s Economic Committee reported that many economic groups and corporations have captive insurers, leading to a lack of competitive edge and transparency. A representative from the Vietnam Insurance Association said that the NA Standing committee has asked these groups to submit detailed reports on the captive insurer model and its financial operations. – VOV

Tags: Vietnam insurance, Vietnam insurance law, Vietnam insurance market