Joint ventures expanding Vietnam’s insurance market

The Ministry of Finance, which serves in part as a watchdog over insurance companies, has revealed that more of the world’s leading insurers will join Vietnam’s market.

A financial institution needs two primary pillars – insurance and banking – together with other business fields such as asset management, stocks and investment funds – to become powerful.

Establishing insurance companies is not easy, as hefty capital and technical capacity are standard requirements.

According to Dau tu chung khoan, some financial institutions planned to set up life insurance companies in 2008, but failed.

Vietcombank-Cardiff, a joint-venture was set up and came to be considered as a good model for forming big financial groups. This trend may continue in 2010.

Agribank has applied for equal partnership in a life insurance joint venture with Japanese Sumitomo Life. Another bank is awaiting its license as an equal partner in a life insurance joint venture with British Aviva, the world’s fifth largest insurer.

Financial analysts characterize joint ventures like these as perfect models. Foreign insurance partners in joint ventures can provide the best technologies, while domestic banks can provide the clients.

Vietnamese partners also have the advantage of deeply understanding the domestic business environment and can help in administrative procedures to obtain operation licenses.

Currently, the model of selling insurance policies through banks (also called bancassurance) remains in its early stages as traditional sales still dominate. However, as Phung Dac Loc, Secretary General of the Vietnam Insurance Association pointed out, bancassurance is forecast to develop well in the future.

In case of bancassurance, bank staff serve as insurance policy sellers. In principle, joint ventures can thus rely on very simple personnel apparatus in comparison with insurance companies.

While the joint venture model has many advantages, there are also some weaknesses.

The 50-50 percent stakes in joint ventures could stymie decision-making if the two sides cannot reach an agreement.

At the same time, no bank wants an insurance company to have more power.

In late 2009, a plan by an international insurance group to form a joint venture with a big bank in Vietnam completely failed. The domestic partner did not agree to allow the foreign partner to hold more than 50 percent of the stakes.

Tags: Vietnam insurance industry, vietnam Insurers, Vietnam’s insurance market