Vietnamese Insurance Market Insights

The Vietnamese insurance market has experienced significant growth in recent years. What was once a segment dominated by nonlife businesses and a state-owned insurance group, BaoViet, has evolved into a thriving industry that includes life insurance.

The rapid growth of Vietnam’s insurance market can be attributed to several key factors. These include the country’s expanding economy, its integration into the global supply chain, the increasing age of its population and the rise in disposable income. These Vietnamese insurance market trends have led to a growing interest in health care and insurance products, driving up the value of insurance premiums in both the life and nonlife sectors.¹

Vietnam has become a competitive arena with more than 70 insurance firms (as of 2022), including life and nonlife insurers, insurance brokers and professional reinsurers as per The Ministry of Finance of the Socialist Republic of Vietnam.² Also in 2022, the general insurance total gross written premium³ amounted to nearly 70 trillion Vietnamese dong (around USD $3 billion), a three-fold increase from the value recorded at the beginning of the last decade, with personal and accident and health (A&H) insurance being the leading categories. Although introduced in 1995, much later than its nonlife counterpart, life insurance in Vietnam has experienced impressive growth in written premium during the past decade, outperforming nonlife insurance in 2022 with nearly 180 trillion Vietnamese dong (around USD $5 billion).⁴

Vietnam also has made substantial progress toward the goal of achieving universal health care. As of 2023, around 93%⁵ of the Vietnamese population had participated in health insurance. Social health insurance has been considered the most important method of public financing for the country’s health care system, but the market for private health insurance and health care providers has been booming because it offers a more extensive range of options for health care treatments, including private facilities and health care financing.

The Vietnam insurance market has not been without its challenges. In 2023, there were accusations of improper selling, particularly in the bancassurance area, which involved bank staff persuading customers to purchase life insurance investment products under the guise of similar risk profiles—but it involved deposits with higher fees and commissions. Despite challenges, the long-term growth potential for Vietnam’s insurance industry remains exceptional, driven by low industry penetration, a growing middle class, an economy moving up the value chain and significant health, life and asset (e.g., property) protection gaps.

In this article, Phuong Chung Ba, FSA, chairman of TC Advisors at Techcombank, provides an overview of the Vietnamese insurance market and insights into its future.

Please briefly share your work background.

Phuong Chung Ba: I am a Fellow of the Society of Actuaries (SOA). My work has mostly been in the life insurance and funds management industries, but lately I also have been focusing on the health and nonlife industries.

I have two main roles. One is advising one of the largest banks in Vietnam, and the other is guiding the growth of one of the largest independent financial advisers in Vietnam, which is TC Advisors.

What are the major products in the Vietnamese insurance market?

Phuong Chung Ba: In terms of the broader financial market, individuals mostly deposit their savings into bank accounts. But the bond market is beginning to grow both on the retail and institution sides, especially with banks and insurance companies.

Individuals are beginning to look for long-term protection when they buy a unit link (product that offers both insurance coverage and investment exposure in equities or bonds) or universal life product instead of looking for investment returns. In other words, they are looking for a guaranteed interest rate and protection instead of an illustrated rate of return.

On the nonlife side, most products in the Vietnamese insurance market are in A&H, followed by motor insurance, property and fire insurance, liability and cargo insurance.

What are the main distribution channels for the Vietnamese insurance market?

Phuong Chung Ba: For life, there are two main channels: banks and agencies. Having said that, there have been lots of issues in both channels lately, so the regulator—The Ministry of Finance of the Socialist Republic of Viet Nam—is trying to clean up the market and make it more professional to ensure market health.

For nonlife, distribution largely comes from employee group business benefits for the A&H business. The pricing is competitive due to premiums being large, and risks are transparent and manageable. For motor insurance, agents manage distribution, and all other types of insurance are broker-driven.

What are some of the insurance market challenges in Vietnam?

Phuong Chung Ba: One challenging area involves distribution channels. As mentioned, the insurance agencies and banks have had issues recently with improper selling. Even though only a small amount of business was affected, the negative publicity has hurt the industry. Agent retention has been poor, leading to poor after-sales service and high lapses.

The independent financial adviser (IFA) channel is too small currently to make a difference. Banks used to distribute and help customers with their claims very well. Now, many banks have entered into exclusive relationships, but some have forgotten that claim and after-sales services are important, leading to customer dissatisfaction.

The regulator has become focused on regulating the distribution channels. There also has been a confidence crisis in Vietnam from a few banks forcing customers to buy insurance policies as part of the loan approval process, which regulations forbid. The Ministry of Finance has developed a robust regulatory framework that:

• Prohibits forced sales
• Implements a 21-day cooling-off period
• Requires licensing of agents for selling universal life and unit link products
• Regulates heavy illustrations (which show the benefit under different investment return scenarios)

However, enforcement has been left mostly to the industry and insurance associations, and it has proven to be less than perfect.

Another challenging area is a lack of big data for risk assessment. The Ministry of Finance wants to promote the use of big data to help the entire industry improve underwriting and provide a more pleasant buying experience for customers. Banks have been able to successfully implement a robust data-driven credit scoring system. The insurance regulator wishes the same for both life and nonlife insurance industries. The days of paper applications and declarations should be things of the past.

Using big data also should result in better claims experience since nondisclosure would be minimized. With big data, actuaries can design better products, and underwriters can more accurately classify risks, leading to more reasonable premiums, better claims experience and a healthier industry.

For the nonlife side, the lack of data also hampers the A&H and auto insurance businesses. Insurers protect themselves by imposing limited conditions, such as a one-year waiting period for a one-year renewable policy, which can result in poor sales and customer claims experiences.

Most people do not see Vietnam as an aging population. But the numbers show that it is, and this fact is becoming a real and difficult issue. The fertility rate is now 2.0 (2.1 is needed to maintain a stable population) and is dropping. As the population ages rapidly, medical expenses will become a higher burden. The current social security system—on a pay-as-you-go basis—could be costly and not sustainable. The system soon could experience financial problems as the population gets older and fewer young people contribute while benefit payments continue to increase. Individual insurance products incentivizing people to lead a healthier lifestyle, as well as prefunding their own retirement, are becoming more important for society and the Vietnam economy.

Like the rest of the world, Vietnam is experiencing climate change-related challenges. Vietnam is seeing bigger and more powerful storms, and it also is affected by saltwater intrusion in the Mekong River as sea levels rise and droughts and flooding are more severe. This has caused more volatile agriculture outputs and larger claims for property insurance.

What can you tell us about the changes in regulations over the decades?

Phuong Chung Ba: Twenty years ago, Vietnam’s insurance regulations were quite basic. Initially, regulators established the overall framework, including requirements for licensing and operations of life insurance in Vietnam and nonlife insurance companies (general insurance companies selling liability insurance). Later, regulations were put in place for health insurance companies, risk management processes, required expertise (including actuarial expertise) and minimum capital requirements. About 12 years ago, laws were amended to criminalize insurance fraud, with the aim of fostering industry growth and reducing fraudulent activities.

The Insurance Supervisory Authority (ISA) was established in 2009. It assists the Ministry of Finance in managing the insurance sector in Vietnam and supervises insurance business activities and other services in the Vietnamese insurance industry as prescribed by law. The ISA introduced many regulations, including which products can be sold, and it addressed reserving requirements and risk management. It also established a reinsurance framework. The ISA concentrates on solvency and the financial health of the industry. There is a gap in that the ISA does not focus much on customer satisfaction—it delegates a lot of that work to the insurance association and individual companies.

On the financial reporting side, risk-based capital (RBC) has not been adopted yet (Vietnam still uses a formula-based approach). For International Financial Reporting Standard (IFRS) 17, the life insurance companies in Vietnam are dominated by foreign companies, many of which are reporting to their parent companies under the new standard. There would be tax implications if the industry were to adopt IFRS 17 because tax reserves are based on current statutory reserves. In addition, if Vietnam adopted IFRS 17, it may go hand in hand with RBC to have a clearer picture of earnings and solvency.

However, since a new insurance law (along with Decree no. 46) was adopted in 2022, including but not limited to imposing more stringent regulations on insurance distribution and setting new thresholds on the minimum required capital, the industry’s focus has been on implementing the new law and accompanying regulations. Therefore, the process of implementing IFRS 17 and RBC likely will take a few more years.

How has technology evolved in Vietnam? How has it compared to Hong Kong, where you also have worked, and other international markets?

Phuong Chung Ba: There are no homegrown technology platforms in Vietnam like Google, Apple, Alibaba or WeChat. Therefore, big data is hard for Vietnamese insurers to obtain.

Having said that, the banking system is very efficient in Vietnam. It is easy for customers to transfer money back and forth by using smartphone banking apps. There is a QR code for each bank account, so customers can transfer money easily. Through the banking apps, we can buy funds, deposit money and so on.

The bank knows the location and the payee. Therefore, the banking industry has a lot of data. If the insurance industry could work with banks to leverage their data, it could make product design and distribution better, and the underwriting and claims process more accurate. But privacy laws will need to be respected, and the industry may need government help similar to the setup of the centralized credit scoring system to implement any data sharing.

Until recently, there have been a lot of fraudulent claims in motor insurance. Now, once there is a vehicle incident, the customer must report it to the police immediately. Then, through the insurance company’s app, the customer can upload the police report along with photos showing the damage, and the insurance company can put the claim compensation directly into the appropriate bank account. This process has helped to reduce fraudulent motor claims significantly and is an example of leveraging technology to improve the industry.

However, on the medical side, some of the apps used for medical insurance claims sometimes fail because they may not read the medical report properly. This has led to claims being paid instantaneously, but incorrectly. This is an example of technology being poorly implemented.

Technology is a double-edged sword, and the industry is still trying to figure out how to leverage it along with big data to benefit consumers.

What future opportunities in the Vietnamese insurance market do you foresee?

Phuong Chung Ba: There is great potential for health insurance because we have a rapidly aging population. Self-funding of health care through individual insurance is becoming even more urgent. A few companies have been focusing on premium ratings based on healthy lifestyles. This may incentivize customers to lead healthier lifestyles and manage their health risks better.

In addition, since the savings rate is still high in Vietnam, life insurance companies should come up with better products and claims services, so customers can help “prefund” their retirement and medical needs from insurance products. This should greatly relieve the burden on the pay-as-you-go government system.

What advice and knowledge can you share with younger actuaries in the Vietnamese insurance market?

Phuong Chung Ba: An ideal insurance market should provide coverage for all important assets (house, car and business) and all important aspects of life and health. It should also include excellent customer service, well-run companies and properly priced risk and reward. In addition, it should empower regulators with the right knowledge to lead and control the market and ensure transparency in financial reporting. These are areas where actuaries can contribute greatly to the industry.

Working in an area related to medical advancement, which can lead to increased life expectancy and reduced medical costs, is one way actuaries may contribute their expertise. Currently, Vietnam is a developing country. But as we get richer and older, drug subsidies will come down, and drug costs will go up. Vietnam is also likely to see an increasing prevalence of diabetes and heart disease as the country becomes wealthier (this tends to be a phenomenon in richer countries). These chronic conditions are expensive to treat, so expertise in pricing, claims management and product design will become even more important.

Other areas where actuaries could contribute is in reserving and capital management—like RBC, IFRS 17—and how to explain insurance company finances to investors to attract capital to the industry.

Vietnam also needs big data to augment the insurance industry. For example, if someone has never been sick, they don’t think much about insurance. But once they are sick, then it is no longer a push product; the customer wants to buy it. Obviously, the insurance company must underwrite that product carefully because the customer approached the insurance company to buy it. Therefore, in my opinion, the best-case scenario would be to have big data and analytics to make an appropriate offer to the customer when they are healthy and sick (with appropriate pricing and risk management).

The days of underwriting relying on application forms is over. Pre-emptive offers (i.e., good risk spotted from big data to attract the customer to buy more) backed by big data lead to a much better customer buying and claims experience, pricing, selection and risk management—and an overall better industry. Actuaries are in a prime position to enable this transition.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.

Copyright © 2024 by the Society of Actuaries, Chicago, Illinois.