Newly proposed amendments to the insurance law will require local insurers to earmark a portion of their revenues for a guarantee fund in order to protect policy holders.
Finance Minister Vu Van Ninh said the law on insurance business that came into effect nearly ten years ago had helped develop the local insurance market over the period, with a total foreign investment of more than US$1 billion so far.
However the law had some shortcomings and needs to be revised, Ninh said.
He said there was currently no provision protecting policy holders when their insurers get into financial trouble, hence the ministry's proposal that insurers are legally bound to set aside a portion of their premium collection for a guarantee fund.
The amended law will also tighten control over the financial capacity of insurers and the qualifications of insurance agents, he said.
A guarantee fund will ensure safety for the financial market, Ha Van Hien, chairman of the National Assembly's Economic Committee, said during a discussion of the proposed amendments.
But Le Thi Thu Ba, chairwoman of the Judicial Committee, said the fund would not be useful if was managed by the insurers themselves.
Instead she suggested local insurers be required to purchase reinsurance from other insurers to make sure they are able to pay their clients in case of bankruptcy.
The amendments will be further discussed by legislators. The finalized version is expected to take effect in January 2011.