A salesperson (R) of motorbike insurance prepares documents for the customers by her street-side stall / PHOTO: DIEP DUC MINH
Though the Vietnamese insurance market's 12 percent growth last year was lower than previous years, the sector still had one of the highest growth rates in Vietnam and was considered "one of bright dots in the economy's gloomy picture."
The brightness, however, has dimmed this year, especially in the field of non-life insurance.
According to official figures, for the first time in the insurance market's 15-year history, the non-life insurance market saw a negative growth rate at minus 5 percent in the first quarter.
By the end of the first half, the sectors earnings were up 2.2 percent year-on-year, but that was still the slowest growth the market has experienced in five years.
Tran Trong Phuc, general director of Bao Viet Group the country's biggest insurer said that on average, Vietnam's insurance market increased 17-18 percent in the first half of previous years, and even 20-22 percent in the first half of 2011.
But he said the figures were so low now that he expected the non-life insurance market to grow only 5 percent this year, and life insurance growth possibly will hit 9 percent.
The Ministry of Finance's goal is to have the insurance market grow 10-12 percent.
Phuc said that because the economy is in trouble, businesses like shipping companies are troubled by decreased orders and freight. So, the demand for general insurance has fallen sharply, especially fire, technique, and freight services.
Meanwhile, car insurance accounts for 30 percent of the non-life insurance market, but the local auto market was sluggish this year, he said.
In a recent interview with online newspaper Cong Thuong (Industry and Trade), Phung Dac Loc, general secretary of the Association of Vietnamese Insurers, said businesses did not buy many new assets, so the demand for insuring such assets was limited.
Assets bought and insured last year also had their premiums discounted by 10 percent for depreciation this year, he added.
Worse, insurers have paid more compensation due to increased fires and other accidents. The rate of compensation costs to premiums was up 42.6 percent over the first nine months, compared to 37 percent over the same period last year.
Facing financial problems, many customers failed to pay their premiums.
Premium debt levels at the five biggest non-life insurers, including Bao Viet and Bao Minh Insurance Corporation, now amount to as much as many hundreds of billions of dong.
Online newspaper Dau Tu Chung Khoan (Securities investment) quoted an unnamed source in August as saying that at a big insurance company, premium debt was over VND400 billion (US$18.9 million) as of June 30.
Most of customers owing premiums were shipping companies like the Vietnam Shipbuilding Industry Group (Vinashin), Vietnam National Shipping Lines (Vinalines), and the Northern Shipping Joint Stock Company, the paper reported.
Gains from financial investments, which make up an important part of insurance companies' profits, have also experienced sharp decreases.
According to some companies, profits from financial investments were down 8-15 percent over the first 10 months year on year. BIDV Insurance Corporation, for instance, registered a decrease of 7 percent.
Do Quang Thuan, general director of Liberty Insurance Vietnam, said in previous years deposit rates were high and the stock market was stable, so insurers were sometimes willing to accept risky contracts to have money so that they could make investments and earn profits.
However, with decreased profits in financial investments, insurers now have to find ways to increase profits from insurance services, which will put pressure on the insurance market, Thuan said.
Phuc of Bao Viet agreed, saying that for many years insurers have accepted losses to gain market shares, relying on investments to earn profits.
He said that many insurance companies actually can not earn enough to recover their costs, adding that some have not paid dividends for 10 years.
Not to mention that many insurers have bad debts resulting from previous investments into risky companies. These insurers have been ordered by the Ministry of Finance to increase their risk management funds.
At a recent Bao Minh shareholder meeting, General Director Le Van Thanh announced that the company had to set aside VND145 billion ($6.8 million) this year for bad debts caused by financial investments, including VND40.7 billion in bonds issued by debt-ridden Vinashin; and bonds issued by Agribank Financial Leasing Company No.2 (ALCII) that lost VND3 trillion ($143.4 million), 8.5 times its chartered capital, in 2009.
Bao Viet also invested VND681 billion ($32.2 million) in Vinashin bonds and VND327 billion ($15.4 million) in ALCII.
In the meantime, new products like agricultural insurance, which has been encouraged by the government, have yet to prove profitable.
The Vietnam National Reinsurance Corporation lost VND19.7 billion ($932,000) in agriculture insurance services last year.
The insurer said that even though the service's sales could reach VND180 billion ($8.5 million) this year, or a 100 percent increase year on year, it will hardly contribute to the company's profits over the next few years.
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