The Vietnamese insurance market is growing rapidly; some figures have suggested a growth rate of 20% rate per annum since 2007. Further, many insurers in Vietnam have small capital bases and, therefore, increasingly insurance companies are listing on Vietnam's stock exchanges to raise capital. Currently, according to A M Best's report, entitled Vietnam's Insurance Market Awakening to Further Change, the insurance market consists of 29 non-life insurers (mainly Vietnamese firms) and 12 life insurers (mainly international firms) carrying on business in Vietnam.
A number of changes have been made to the regulation of the insurance industry in Vietnam over the past decade. Until the US-Vietnam Bilateral Agreement (BTA) came into force in December 2001, domestic insurers were treated more favorably than international insurers. However, since the BTA took effect in 2006 steps have been implemented to ensure both domestic and international insurers are being treated equally. This was further cemented by Vietnam's accession to the World Trade Organization (WTO) in 2007. For example, following accession to the WTO, the capital requirements for non-life insurers increased from 70 billion dong to 300 billion dong in 2007. Further, on 1 July 2011, the amended Law on Insurance Business (Amended Law) took effect as Vietnam seeks to codify some of the commitments it made before its accession to the WTO in 2007.
The Amended Law is expected to tighten regulation on foreign invested companies and brokers that offer cross-border insurance services. Although full details have yet to emerge, such regulation is likely to include the requirement for a 10 year operating history, a credit rating and a deposit with a Vietnamese bank. However, commencing early 2012, foreign non-life insurers will be able to establish branches in Vietnam. Previously foreign insurers operating in Vietnam could only invest in the insurance industry in Vietnam in the following ways: (i) joint ventures with Vietnamese enterprises and (ii) 100% foreign invested enterprises (a Vietnamese company incorporated to carry on insurance business and wholly owned by a foreign insurance company).
There are, however, concerns over a number of new provisions to be implemented by the Amended Law, in particular a provision requiring a tender process to be held in respect of providing insurance cover for state-backed projects. Critics of this particular provision argue that such a process could lead to increased competition and tighter profit margins. Conversely, the more transparent bidding process could give state-backed companies greater access to insurance coverage at a lower cost. Further, some stakeholders, in particular, the Association of Vietnamese Insurers, have called for a more transparent legal framework and the roll-out of a minimum premium list.
The Ministry of Finance, which oversees the insurance industry via the Insurance Supervisory Authority (ISA), is to introduce a raft of additional changes. Such changes relate primarily to sanctions (for example, increasing penalties and the possibility of license revocation) and the revision of compulsory fire and explosion insurance. The ISA is also to examine distribution methods and will look to standardize training for brokers and agents to combat the talent shortage in the insurance industry in Vietnam.
Although the growth potential in the Vietnamese insurance market is high, any foreign insurer looking to invest in the insurance market or establish itself in Vietnam must comply with the tightening regulation, increasing competition and continuing operating challenges in order to thrive.
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