Foreign insurers dominate local ones

Foreign firms are dominating insurance market, including life insurance and non-life insurance areas. Notably, this is also the tendency of the coming years, which means this rather lucrative business continues to be overwhelmed by foreign insurers.

Losing in home market

According to Insurance Supervisory Authority under Ministry of Finance, to date, there are 53 insurance firms in the market, including 29 non-life insurance firms, 12 life insurance firms, 11 insurance brokers, and one re-insurance firm. Among these, foreign firms dominate in number, scale, and financial revenues. Of the 12 life insurance firms, only Bao Viet is from Vietnam. Of the joint venture insurance firms, only Vietcombank – Cardif is from Vietnam, the remaining 10 are foreign ones. In non-life insurance sector, the number of foreign firms is 10, however, 33 representative offices of foreign insurance firms operating in Vietnam are urgently preparing for their market penetration.

Not only overwhelming in number of firms, foreign insurers also overwhelm in scale of operation and especially sales revenue. As announced by Ministry of Finance, total insurance premium in 2010 is estimated at 30.690 trillion dong. If separating life insurance premium, which is about 13.690 trillion dong, Bao Viet accounts for about 690 trillion dong. That means the revenue of about 10 trillion dong entirely belongs to foreign insurance firms, which are holding about 70 percent market share. For non-life insurers, although domestic firms are holding large market share, experts have warned that there has been a strong rise of foreign firms.

Specifically, in many consecutive years, the top firms that have high growth rates have been foreign ones. Review in the first 10 months of 2010 shows that MSIG Insurance grew by 297 percent, Groupama by 205 percent, ACE by 153 percent, etc. Financial experts said that with these growth rates, foreign firms are gradually gaining new market share. Another concern is, although the only re-insurance company is of Vietnam, it is small in size, thus, in the first 10 months of the year, it reinsured just about 1.458 trillion dong in the domestic, but 2.947 trillion dong in overseas.

Long-term concerns

According to assessment of experts, the potential of life insurance market in Vietnam is still very large. Currently, only about five percent of the population purchases insurance. Such figure shows that in life insurance sector, Bao Viet would have many difficulties in competing. One of the concerns for this sector is that foreign insurers are not only having large-scale capital, good management skills, they also focus on quality and the diversity of insurance products.

Explaining why Vietnam only has one company with 100 percent domestic capital operating in life insurance sector to date, experts in this field said that this sector requires large capital, the minimum requirement is 500 billion dong. In addition, due to large number of contracts and high risks, management activities need good technology. Moreover, the cost of market entry for life-insurance firms is relatively high, players most likely not be profitable in the first four to five years. This is the challenge for many businesses. Similarly, in re-insurance sector, experts said that Vietnamese firms do not have adequate capital and capability to reinsure big contracts. Thus, in the long-term, life insurance and re-insurance sectors would still be dominated by foreign firms.

As for non-life insurance, experts have given warnings on the fierce and even unhealthy competition. Specifically, during the past and at present, foreign insurers have put pressure on domestic firms by lowering premiums, increasing commissions, even accepting losses to dominate the market. In 2008, 16 firms reported losses with over 160 billion dong, in 2009, the losses were over 200 billion dong. Experts believe that unfair competition in non-life insurance market is alarming, adding that if Vietnamese firms do not soon carry out innovation, improve financial and risk management capacity, they would face great difficulties in long-term business strategy.  - Laodong

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