Local insurers in Vietnam need to stop competing on premium rates as they earn nothing from such a move, market regulators say.
The Ministry of Finance recognizes that local insurance firms do not have any long term business plans and are not making enough effort to improve their services, said Trinh Thanh Hoan, chief of the ministry's Insurance Division.
Unhealthy competition is rampant in the industry, specifically the non-life sector, Hoan was cited as saying in a report published on Monday by the Vietnam Economic Times.
Some non-life insurance companies were trying to win customers at all costs without paying attention to risk assessment and reinsurance, and have had to incur losses, he said.
They compete against each other by lowering rates and offering favorable terms and conditions that they cannot afford, Hoan said.
Insurers in the country posted a combined loss of VND264 billion (US$13.8 million) last year. Of 27 non-life insurers, 16 firms suffered losses in their core business and one became insolvent.
Trinh Quang Tuyen, chairman of the Association of Vietnamese Insurers, said unhealthy competition was curbed last year but not by much. Local insurance firms accepted to sit together to reconsider both terms and risks, but not much of the commitment has actually materialized.
"If companies really cooperate and prevent unhealthy competition, the market will be better. It will be a waste if they try to fight to the end without any concern for their profits.
"Ship hull insurance services, for instance, have been available for nine years but they are still unprofitable," he said.
Tran Vinh Duc, chairman of Bao Minh, said the $1.3 billion market can be expanded. "We know that our market share will be divided, but the important thing to do is to make the pie bigger." He also said insurers need to collaborate to maintain their business, even if it means smaller market shares for them. "The question is, how should they work together to make sure the rates are enough for all companies to earn profits."
Deputy Finance Minister Tran Xuan Ha said insurance companies need to improve their business culture.
"No insurer was fined last year but in 2010 we will impose strict and fair penalties on unhealthy competitive practices," he said.
Hoan said the authorities will issue more insurance regulations this year to ensure strong and safe development for the insurance industry.
"The main competing activity used by the firms is to cut premium costs. Therefore we will set a minimum rate for insurers to make sure they do not go bankrupt and the benefits for customers are maintained."