Joining life insurance market is not easy

Some domestic enterprises are planning to jump into the life insurance market, but they have been warned that it will be very challenging.

According to the Ministry of Finance, to date, there are 50 insurance companies operating in the fields of life insurance, non-life insurance, insurance brokerage and reinsurance. Among the 11 operational life insurance companies, there is only one Vietnamese-invested enterprise – Bao Viet Life.

The insurance market still has great potential. All life insurance companies, though coping with many difficulties, made high business achievements in 2009 and the first six months of 2010.

To date, only five percent of the Vietnamese population have purchased insurance policies, while, according to Dau tu chung khoan, at least 30 percent are financially capable of buying insurance.

According to Bao Viet Life, after 14 years of operation, the company’s total revenue and number of insurance policies jumped from one billion dong and 1300 insurance policies in 1996 to 5710 billion dong and 1.5 million policies in 2009.

In 2009, the insurance premiums of Bao Viet Life were 3705 billion dong, an increase of nine percent over 2008.

Great potential has proven to be the most important reason encouraging enterprises to jump into insurance. Two years ago, Vietcombank, SeABank and Cardiff (belonging to French BNP Paribas) signed a contract to establish Vietcombank-Cardiff life insurance company. The company has chartered capital of 140 billion dong, with Vietcombank holding 45 percent of stakes, Cardiff 43 percent and SeABank 12 percent.

When talking about long-term development strategy, Nguyen Quang Tung, General Director of BIDV Insurance Company (BIC) agreed that the company will expand its operation into the life insurance sector. Tung added that BIC is seeking to set up a joint-venture in which BIC will hold controlling stakes.

Agribank has reportedly contacted Sumitomo Life, while Vietinbank has contacted European Life, to discuss forming life insurance joint-ventures.

The companies that plan to jump into the life insurance sector have been warned that they must confront many obstacles. The reason why there has been only one domestic-invested enterprise, one insurance expert explained, is that life insurance business always set high requirements. Companies need good technologies to manage large numbers of insurance policies, they must compete with each other by launching new products and domestic companies are still weak in calculating premiums and measuring risk.

Besides, not every company can meet the requirement on minimum chartered capital (life insurance companies must have 500 billion dong, while non-life insurance need 300 billion dong).

The price of joining the market is also always very high. They do not expect to profit in the first 4-5 years of operation. As such, only those enterprises with huge investment capital can run life insurance companies. They also require a large distribution network to sell policies, a huge challenge to many enterprises.

Vietcombank-Cardiff has just launched its first product after nearly three years of operation, showing that it is not easy to build up a life insurance company.

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