High inflation has forced many people to slash their spending, but the economic doldrums seem to have offered growth opportunities for the life insurance business.
"Inflation has not affected the life insurance market, because its customers are often people of the middle-income group and upwards," said Phung Dac Loc, general secretary of the Association of Vietnamese Insurers.
"They do not have to cut their spending on services to have more money for eating, since food does not make up much of their total expenditure."
Although inflation is up 9.64 percent from the end of 2010, the life insurance market has seen rapid growth. According to the Ministry of Finance, the local life insurance sector posted a 16.2 percent increase in premiums to nearly VND1.95 trillion (US$97.5 million) in the first two months of this year.
Loc said high inflation could actually make people more interested in life insurance, considering it a way to stabilize their lives. Insurance products can offer customers good protection from difficulties, he said.
Nguyen Duc Tuan, general director of insurer Bao Viet Life, said the rise in inflation has not reduced customers. "While there are still a lot of public savings, it is not difficult for many people to pay insurance fees of VND10-20 million each year."
Bao Viet Life, the second biggest life insurer in Vietnam, which now accounts for over 37 percent of the market share, saw a 27.2-percent rise in premiums from new policies in the first two months of this year.
Loc said insurance companies have launched new products to facilitate clients' access to their services. Customers can now choose insurance products with low rates, or extend the period for contract implementation. Then, after paying insurance premiums for a certain time, they can also borrow funds from insurers.
He said some customers have cancelled their contracts this year. However, this would happen even without an economic downturn or inflation hike, he noted, adding that typically, the cancelled contracts are of low value and do not affect the market.
Local firms struggle
With only about 5 percent of Vietnam's 86 million population covered by life insurance, the market presents a huge potential for growth, industry insiders say.
Mark Tucker, CEO of AIA, said the insurance sectors in Asian economies are at different development stages. The insurance markets in Hong Kong and Singapore, which are already quite developed, will see slower growth than that in Vietnam.
According to Generali, Italy's largest insurer that recently entered the Vietnamese market, economic conditions in the country are extremely favorable for development of the insurance industry, which grew by 22 percent in 2010 alone.
Vietnam has a low insurance penetration ratio of just 1.6 percent of its gross domestic product, it said.
While many businesses are hoping to get themselves a share, Loc said the domestic life insurance market was already too crowded with 13 companies, and any more entrants would make the competition much tougher.
Given the current financial difficulties, it is necessary to stop licensing new insurers in order to maintain stability in the market, he said.
Tuan of Bao Viet Life said the market is large, and insurers have different business strategies. In other countries, there are hundreds of insurers, so firms should get used to fierce competition and improve their business to keep their footholds in the market intact, he said.
His company considers technological improvement and staff training the most important factors for its business development, Tuan said.
However, Loc insisted that it was difficult for local companies to tap the potential market, because they do not have the capacity to manage complicated insurance policies, and design attractive insurance products.
"In the current context of capital shortage, many commercial banks, which borrow capital for short terms, and lend it for long terms, want to participate in the market. However, it is difficult due to the limited ability in terms of policy management and product designs," he said.
Thus, experienced foreign insurers have more advantages in tapping the market.
Out of 13 life insurers in Vietnam, only one is a local firm, Loc noted.