Government aims to tighten a loose market crowded with ineffective firms
Prudential office in Ho Chi Minh City's District 1. Vietnam now has 43 insurers, including 14 life insurance firms.
Amid a stagnant economy, the Ministry of Finance will restructure the country's insurance industry this year to stabilize the market by supporting profitable insurers and encouraging weaker companies to consolidate.
Insurance companies have been categorized into four groups, with specific management and supervision measures to be taken for each group.
The first group will consist of insurance companies with guaranteed solvency and consistently profitable business. They will be reinforced and maintained, allowing for expansion in line with efficient business plans, according to the ministry. However, they will be inspected and supervised closely to ensure their compliance with the law.
The second will include insurers with guaranteed solvency that are struggling with high operation costs, high compensation rates, and no profits for two consecutive years. Management agencies will evaluate these firms' efficiency and help reduce operational expenses, the ministry has said.
The third group includes companies with a solvency margin below the minimum level. These companies require financial assessments, investment restructuring, and debt settlement. Parts of their insurance policies will be transferred to other firms.
Insolvent companies will constitute the final group, which will be put under special control of government agencies. If firms fail to overcome their difficulties during the special control period, they would be forced to merge or announce bankruptcy, according to the plan.
"The restructure of the insurance industry is quite necessary," said Phung Dac Loc, general secretary of the Association of Vietnamese Insurers. "Many insurers are facing losses due to the small number of customers amid high inflation, and the government's policy of public investment reduction."
The Ministry of Finance should draw up a long-term roadmap as weak insurers will not be able to surmount difficulties within one year, he said.
Echoing Loc, Do Thi Kim Lien, general director of insurer AAA, said: "The Ministry of Finance should allow insurers to contribute their opinions to the construction of the draft plan, making it feasible when being implemented."
Many policy shortcomings have caused difficulties for insurers. For example, insurers are required to set aside a large part of their revenues to build their reserve funds, which causes losses due to low growth in turnovers, she said.
Pham Quang Tung, chairman of the management board of the BIDV Insurance Corporation, also known as BIC, said the ministry should put forth higher and clearer financial safety standards, so that customers can assess the companies' situations and facilitate the removal of weak insurers from the market.
He said mergers and acquisitions would be a good way to develop weak insurers, and help the establishment of larger, more competitive companies.
With a legal capital of VND300 billion (US$14.28 million), the plan allows insurers to provide high-value services in specific fields, excluding aviation, satellite, and petroleum. "This is unsafe, as insurers may lack experience in some fields," said Tung.
To help insurers improve their service quality, the ministry should regulate fixed insurance premiums based on an analysis of the risks involved in common insurance products.
Corporate management of insurers should also be improved, he said.
Many insurers have already restructured to improve their competitiveness.
Lien of AAA said her firm has been preparing to restructure for three years, aiming to cut its business costs, and improve technology and corporate management. AAA aims to reduce its business costs by 10 percent, and gain turnover growth of 20-25 percent this year, she said.
Loc said that all insurers need to restructure to improve efficiency and meet market demand, but also complained that many claimed to be restructuring when they weren't.
"Some insurers consider the expansion of their investment in both non-life and life insurance fields, and even the stock market, as restructuring. But that is wrong."
To increase competitiveness, insurers should improve technology, design attractive insurance products, and employ experienced workers, he said.
Loc said the market is too crowded with 43 insurers, including 29 non-life insurance companies, and 14 life insurance firms, and any more entrants would make competition much tougher.
He also said demand for insurance services will fall as the number of construction projects this year is expected to drop while companies retract investment amid a slow economy.
"It would be very good if the insurance industry can keep its growth this year equal to that of last year, about 21 percent for non-life insurance, and 17 percent for life insurance," he said.
He also added that new insurers should not be licensed in order to maintain stability in the market. "We should have technical barriers to prevent unqualified insurers from infiltrating the market."
Weak insurers could also weaken competition, he said.
They may reduce insurance fees, and loosen insurance conditions to lure customers, raising the risks for customers, he argued.