I. INTRODUCTION1

A. In general

Vietnam continues to make economic progress. It is now a solid middle income country. At the same time, the middle class is expanding. World Trade Organization ("WTO") membership, the ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership ("CPTPP"), The European Union ("EU")-Vietnam Free Trade Agreement ("EVFTA"), Investment Protection Agreement ("EVIPA") and several other significant free trade agreements, and membership in the ASEAN Economic Community ("AEC") have given Vietnam access to foreign markets and capital, while making Vietnamese companies, particularly Vietnamese insurance enterprises, stronger through increased competition.

Many foreign insurance enterprises (particularly in the life segment) operate in Vietnam and treat Vietnam as a natural extension of their regional or global footprints. New products are being developed. Agency networks are being built. In the non-life segment, local companies have generally shown more pricing discipline than have their counterparts elsewhere in the region. Motor insurance--so often a thankless and profitless line in emerging markets--accounts for about one third of the premiums written in the non-life segment.

Companies are also beginning to provide innovative products tailored to Vietnam. The Ministry of Finance estimates the total posted premiums for 2022 to have been VND 241.3 trillion (US$ 10.3billion)2, which is 15.09% higher than that of 2021. Total value of the insurance sector in 2022 is around VND 811 trillion (US$ 34.5 billion), up by 14,51%compared to 2021. Insurance enterprises invested around VND 656 trillion (US$ 27.9 billion), up by 12,56% from 2021. This includes investment in government bonds.3

Even though COVID-19 had a crippling effect on Vietnam's economy and particularly the insurance sector, companies have shown great resilience by finding alternative distribution channels (for example, online or through bancassurance) and the digitalization of many aspects of the sales and purchase of insurance, including consultancy, payment, etc. In addition, the Ministry of Finance has put several policies in place to assist the insurance sector, including but not limited to the simplification of many administrative procedures.

B. History and Relevant Laws

The Vietnamese legal system operates hierarchically. The National Assembly passes law. The particular ministries then issue Decrees, Ordinances and Circulars to interpret and administer those laws. All of these are relevant in the regulation of the Vietnamese insurance industry.

When Vietnam became unified and operated a planned economy, insurance was not considered a business activity. It was viewed as a means to share risk among state-owned enterprises and to satisfy Vietnam's insurance obligations in international business transactions. The Vietnam Insurance Corporation ("BaoViet") monopolized the insurance industry. BaoViet, itself a state-owned enterprise, was formed under the authority of, and is supervised by, the Ministry of Finance ("MOF"). The MOF permitted BaoViet to divest specific lines of insurance products. This was a sign of a shift in the way state-owned enterprises were viewed.

In late 1993, Vietnam began to recognize insurance as a business activity, and therefore subject to business regulation, including competition laws. Early attempts to regulate the insurance industry set forth basic rules governing insurance enterprises. Decree No. 100/CP dated December 18, 1993, authorized the formation of insurance enterprises other than state-owned enterprises. The Law on Insurance Business dated December 9, 2000 ("Old LOIB") replaced early attempts to regulate insurance providers, and developed a comprehensive approach to the insurance business. After 20 years of operation, some parts of the old LOIB were amended and have been amended and supplemented by Law 61/2010/QH12 which was adopted by the National Assembly on November 24, 2010 ("Law 61") and subsequently by Law 42/2019/QH14 which was adopted by the National Assembly on June 14, 2019 ("Law 42"). On June 16, 2022, the National Assembly adopted a new Law on Insurance Business No. 08/2022/QH15, which became effective on January 1, 2023 ("LOIB"). The LOIB supersedes the Old LOIB, Law 61 and Law 42. In July 2016, the Government's Decree 73/2016/ND-CP ("Decree 73/2016") which implements the LOIB and Law 61 came into effect and replaced all previous implementing regulations of the LOIB. On May 15, 2017, the MOF issued Circular 50/2017/TT-BTC ("Circular 50/2017") which implements Decree 73/2016. Decree 72/2016 and Circular 50/2017 underwent changes when Decree 151/2018/ND-CP4, Decree 80/2019/ND-CP5, Circular 01/2019/TT-BTC6, Circular 89/2020/TT-BTC7 and Circular 14/2022/TT-BTC8 were promulgated.

In addition to the LOIB, the Maritime Law9,contains a section that governs marine insurance purchased for marine contracts.10

Various laws have recognized the importance of maintaining competition in the marketplace and streamlining the role of government in the insurance industry. Moreover, an increased emphasis on promoting competition has resulted in laws that expressly forbid anti-competitive activities. The Commercial Law, passed in June 2005, prohibits inappropriate competitive practice in general.

The Competition Law11, which became effective on July 1, 2019 ("Competition Law"), introduced comprehensive legislation which deals with anti-competitive products. It covers anti-competitive practices and practices that may restrain competition, such as agreements in the restraint of trade, abuse of dominant market position, and unfair competitive practices, including coercion, defamation, and deceptive advertising. The Competition Law takes the view that competitive practices may have both positive and negative effects on the market. Therefore, a competitive activity should only be prohibited if it "has or potentially has a significant competition-restraining impact on Vietnam's market". The Competition Law also established exemptions from its own regulations. This translates into the insurance sector in two ways. First, the general application of its principles prevents insurers from misrepresenting the coverage terms of policies to potential customers, and requires transparency as a systemic necessity for the industry. Second, practical considerations suggest that while particular aspects of the industry may technically breach competition laws, limited exemptions are provided for activities that provide an advantage to customers. Those activities should satisfy one of the following conditions: (i) promote technical or technological progress, improving the quality of goods and services; (ii) increase the competitiveness of Vietnamese enterprises in the international market; (iii) promote applicability of uniform quality standards and technical norms of certain types of products; (iv) unify conditions on trading, delivery of goods and payment but does not relate to price or pricing factors; and (v) other cooperative arrangements as provided for in industry-specific legislation. As such the Competition Law's rules on co-operation and competition may be modified by the LOIB which addresses both the types of cooperation which are permitted, as well as the specific types of conduct which are prohibited--for example collusion aimed at carving up the insurance market.

Under the LOIB, an insurance agent is not allowed to (i) provide untruthful information nor make false advertising related to insurance terms and policies, (ii) prevent a buyer from providing required information regarding insurance policies, (iii) preclude, entice, bribe or threaten customers or employees of other insurance businesses or (iv) encourage customers to terminate their current insurance policies12. The LOIB prohibits an insurance broker from (i) requesting buyers to withhold information or to prevent buyers from providing information for insurance policies, (ii) providing illegal services to entice buyers to buy its insurance policies, (iii) enticing buyers to terminate their existing insurance policies for new insurance policies, (iv) to recommend insurance policies from one insurer under less competitive terms and conditions than those of another insurer in order to gain higher commission, and (v) to provide buyers with false or inappropriate information in relation to the terms and conditions of the insurance policies.13

The Law on Health Insurance, dated November 14, 2008 and the amended law dated June 13, 2014 are applicable to all individuals and organizations, both domestic and foreign, and govern the eligibility and the scope of insurance coverage, health insurance funding, rights and obligations of insurers and insureds, and provide a road map for universal health insurance. These laws have had a considerable impact on enterprises, which are obligated to provide health insurance coverage for all employees working under indefinite-term labor contracts or labor contacts with a definite term of three months or more, as well as for managers who receive wages.

C. International Agreements

The U.S.-Vietnam Bilateral Trade Agreement ("BTA") came into effect in December 2001. Five years later, American insurance enterprises were permitted to establish 100% foreign invested enterprises to provide both compulsory and non-compulsory insurance products. In May 2022, the U.S. launched the Indo-Pacific Economic Framework for Prosperity ("IPEF") with 14 partners, including Vietnam. The aim of the IPEF is to offer tangible benefits that fuel economic activity and investment, promote sustainable and inclusive economic growth, and benefit workers and consumers across the region. The details of this framework are subject to negotiation among its members.

Vietnam's accession to the World Trade Organization in January of 2007 opened the market to all other foreign investors.

Under its WTO Commitments, beginning January 1, 2008, Vietnam began giving equal treatment to both foreign and domestic insurance enterprises. Foreign insurance enterprises may provide insurance services to companies with foreign-invested capital and foreigners working in Vietnam. They may also provide reinsurance, international transport insurance, and insurance brokerage services. Foreign invested insurance enterprises may also deal in compulsory insurance products, such as liability insurance for vehicle owners.

The AEC was officially established on December 31, 2015 and Vietnam is part of the community. The AEC aims to create a single free market in ASEAN. This means that an insurance enterprise in ASEAN would be able to provide insurance services to clients in other ASEAN countries on a cross-border basis; a client in an ASEAN country can freely choose to purchase insurance services from an entity in another ASEAN country; and an insurance expert can work freely in the ASEAN region. Additionally, the Regional Comprehensive Economic Partnership ("RCEP"), which came into force on January 1, 2022, expands the basis of the free trade agreements within ASEAN to other countries including Australia, China, Japan, South Korea and New Zealand.

The Trans-Pacific Partnership Agreement ("TPP") was signed on February 4, 2016, in Auckland, New Zealand. After the withdrawal of the US, the TPP was replaced by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership ("CPTPP"), which was signed on March 8, 2018 in Santiago, Chile. CPTPP and its predecessor, the TPP, are comprehensive agreements, with the aim to create a new potential market for goods and services which in turn will create a great opportunity and also a challenge for insurance enterprises. Vietnam ratified the CPTPP on January 14, 2019. Under the CPTPP, an insurance enterprise in one of the eleven member countries can expand its business to another member country, subject to certain conditions.

The European Union ("EU")-Vietnam Free Trade Agreement ("EVFTA") and Investment Protection Agreement ("EVIPA") were ratified by the National Assembly of Vietnam on June 8, 2020. The EVFTA came into effect on August 1, 2020 and the EVIPA and will come into effect when it is approved by the Parliament of each EU member state. The EVFTA looks to foster a transparent and open partnership with a focus on trade liberalization and economic integration. In terms of the insurance market, the EVFTA does not offer any significant advantage in comparison to the WTO. However, insurance enterprises from the EU may take advantage of other aspects of the EVFTA, such as the dispute settlement mechanism and protection of intellectual property rights, which surpass the standards provided by the WTO.

D. Internal and External Supervision

The Government is responsible for providing guidelines to explain and implement the law, and the MOF is responsible for implementing state regulations and supervising insurance activities. The MOF grants and withdraws licenses to establish and operate insurance enterprises.14

Insurance enterprises must make periodic reports to the MOF. Additional reporting requirements apply if there are unusual developments within the enterprise, which may adversely affect the solvency, reputation of the insurance enterprise, or if the enterprise fails either to meet its financial or other legal requirements.15 Liquidation of or mergers between insurance enterprises must be carried out under the supervision of the MOF, and changes in the management structure or intended investment overseas require MOF approval. The MOF also carries out financial inspections of insurance enterprises once a year.

The MOF acts both as a government regulator of insurance enterprises, and as an owner of several joint stock companies formed from the equitization of state-owned insurance enterprises. This dual role continues to pose a conflict of interest in terms of administrative enforcement.

In addition to the regulatory role of the MOF, insurance enterprises must also adopt a system of internal supervision and control. The MOF's Circular 195/2014/TT-BTC dated December 17, 2014, as amended by Circular 89/2020/TT-BTC ("Circular 195/2014") provides guidance to evaluate and classify insurance enterprises. Circular 195/2014 replaces the system of supervisory criteria for insurance enterprises that was introduced by Decision 153/2003/QD-BTC dated September 22, 2003. Insurance enterprises are evaluated and classified based on four categories of criteria: (i) Solvency, operation reserves and business efficiency; (ii) Insurance business activities; (iii) Capital, asset and investment quality; and (iv) Business administration and information transparency. Each category of criteria varies among the various forms of life and non-life insurance enterprises. This evaluation and classification system can be used as a consistent and systematic analytical tool by the MOF, as well as for internal supervision by an insurance enterprise to determine its business status and to detect and prevent insolvency. An insurance enterprise must file an evaluation report and the annual financial report with the MOF within 90 days from the last day of each fiscal year.

Insurance enterprises create internal control systems to ensure that their operations comply with the law. Records and results of internal audits must be in writing and filed at the enterprise's office. Circular 50/2017 provides further guidance on the financial regimes to manage internal control, including decentralizing and maintaining internal control activities independent from the executive and professional activities of the enterprise; preserving the objectivity of the internal auditors; and ensuring that the internal auditors have the necessary professional skills and qualifications to conduct such audits. Internal auditors must also assess the internal audit system itself, and verify the efficacy of existing rules for identifying risks and of methods for measuring and managing those risks. They must also check the flow of information within the firm, and assess compliance with the law, with regulations on the establishment of reserves and with professional ethics.

The Vietnam Insurance Association ("VIA") was established in 1999 as a professional association. The VIA has a role in oversight, since an enterprise must inform the VIA of any agents with whom the enterprise has terminated its relationship due to legal or professional malfeasance. As the market expands, the VIA may play a greater part in establishing professional and ethical rules, and providing a forum in which market participants can communicate with each other and with the Government.

The procedures and documents necessary to establish an insurance enterprise are provided in Decree 73/2016. Potential shareholders of an insurance enterprise must prepare three sets of application documents, one set of originals and two sets of copies, which must include all the documents required by Decree 73/2016. Within 21 days of receipt of the application, the MOF is required to notify the applicant in writing if it needs to supplement the application documents. Within 6 months of notice, if the applicants fail to satisfy the MOF, the MOF will dismiss the application and notify the applicants in writing. If the application is successful, the MOF will issue an Establishment and Operation License ("Business License") within 60 days from the date of receiving the application. If the MOF determines not to issue a Business License, it will provide a written explanation.16

E. Sanctions

Decree 98/2013/ND-CP17 dated August 28, 2013 ("Decree 98/2013") lists sanctions for administrative violations by insurance enterprises. They include violation of rules that relate to the establishment and operation of insurance enterprises. Decree 98/2013 includes sanctions on unlawful management and operation of insurance enterprises; unlawful competition, including providing false information or advertising which damages policy holders; competing for customers by interfering with other enterprises or intimidating their employees; and agreeing to restrict competition. The fine for violating these rules, with respect to individuals is up to VND100 million (US$ 4,250), and is up to VND200 million (US$ 8,500) with respect to an enterprise. The Decree also provides a set of penalties for failing to adhere to financial requirements, such as compulsory reserve requirements. A decision to sanction an insurance enterprise for administrative violations will expire one year after the date it is issued. Some sanctions depend on the specific administrative violation, such as: (i) revocation of the certificate of one or more insurance agents; (ii) suspension of an insurance enterprise's operation; and (iii) confiscation of means used to commit an administrative violation.18

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Footnotes

1. This book has been written by lawyers in the Vietnam offices of Russin & Vecchi and is current as of May 2023.

2. US$ 1 = VND 23,500 (May 2023)

3. Vietnam Finance Magazine, January 22, 2023

4. Government's Decree 151/2018/ND-CP dated November 7, 2018 on supplements and amendments of the investments and business conditions under the regulatory power of the Ministry of Finance

5. Government's Decree 80/2019/ND-CP dated November 1, 2019 on supplements and amendments of certain articles of Decree 73/2016 and Decree 98/2013;

6. Circular 01/2019/TT-BTC of the MOF dated January 2, 2019 on amendments of certain articles of Circular 50/2017

7. Circular 89/2020/TT-BTC of the MOF dated November 11, 2020 on amendments of several circulars on insurance

8. Circular 14/2022/TT-BTC of the MOF dated February 28, 2022 on amendments of certain articles of Circular 50/2017 and another circular on mandatory civil liability insurance of vehicle owner.

9. The Maritime Law No. 95/2015/QH13 adopted by the National Assembly on November 25, 2015

10. Maritime Law 2015 arts. 303-336;

11. The Competition Law No. 23/2018/QH14 adopted by the National Assembly on June 12, 2018

12. LOIB art. 129.3

13. LOIB art. 137.3

14. Decree 73/2016 art. 3

15. LOIB art.106.

16. Decree 73/2016 art. 15

17. Decree 98/2013/ND-CP was amended by Government's Decree 48/2018/ND-CP dated March 21, 2018 and Government's Decree 80/2019/ND-CP dated November 1, 2019

18. Decree 98/2013 art. 3

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.