Insurance sector gets new rules

The Law on Insurance Business was passed by the National Assembly in December 2000 and took effect on April 1, 2001. For the past 10 years, the law has created favourable conditions for the growth and international integration of the Vietnamese insurance industry and established a legal framework to regulate and prevent unfair competition in the insurance field.

However, the law has also demonstrated some unsuitable provisions which need to be addressed to meet the requirements of a rapidly developing insurance market.

For instance, when Viet Nam signed the Bilateral Trade Agreement (BTA) with the US and jointed the World Trade Organisation (WTO) with commitments to opening insurance market, the Ministry of Finance also joined the International Association of Insurance Supervisors (IAIS), requiring the insurance industry to comply with international standards and principles. These commitments and principles needed to be stipulated in the Law on Insurance Business.

Since the passage of the law in 2000, related laws have also been changed, including the Law on Enterprises (passed in 2005) and the Law on Investment (passed in 2005 and replacing the Law on Foreign Investment). As part of a unified legal system, the Law on Insurance Business needs to conform with these laws.

Insurance is a risky and sensitive field. For this reason, the law must also more clearly provide for principles of careful management and enhance oversight by State agencies.

In light of these factors, the National Assembly passed an amended Law on Insurance Business in November 2010. The new law took effect on July 1, 2011. New provisions in the law address such issues as the provision of cross-border insurance services, compulsory reinsurance, and types of insurance products, as well as provisions unifying the law with other relevant Vietnamese laws, including the laws on Enterprises, Investment, Tendering, and Competition.

Under Viet Nam’s WTO commitments, Viet Nam is required to allow foreign insurance enterprises to provide cross-border insurance services here. The amended law recognises that right.

In addition to the two types of insurance products provided in the law 2000 – life and non-life insurance – the new law adds health insurance as a distinct category from non-life insurance, consistent with international practice.

In accordance with commitments in the BTA, the amended law removed provisions on compulsory reinsurance to allow insurance companies rights to reinsure with offshore insurance enterprises without reinsuring a part of their covered liability with domestic reinsurance entities. However, in order to ensure the financial stability of the insurance market, there is a new provision that foreign insurance entities accepting reinsurance must hold a credit rating from an international credit evaluation enterprise approved by the Ministry of Finance.

Addressing the business forms under which foreign insurance enterprises can operate in Viet Nam, foreign insurance companies and foreign insurance brokerage companies can operate under the forms of limited liability companies, branches of foreign non-life insurance companies, and wholly foreign-owned joint-stock companies. Article 10 of the amended law also provides requirements for complying with the laws on Tendering and Competition.

The new law promises to create a more open competitive environment and foster sustainable development of the Vietnamese insurance market, although implementation of many of its provisions continue to await detailed regulations from a guiding decree to whose draft is undergoing a period of public comment. — VNS

Tags: Vietnam insurance, Vietnam insurance industry, Vietnam insurance market