The first three months of 2017 saw major losses for non-life insurance companies in Vietnam stemming from a number of serious incidents: a fire at the Truong Hai Auto Corporation (Thaco)’s factory in central Quang Nam province, which caused $11 million in damage, another fire at the Agriculture Printing & Packing JSC’s factory in northern Hung Yen province, and the pirate attack on Vinashin’s Giang Hai cargo ship off the coast of the Philippines. 

In the latest incident, a blaze hit the Kwong Lung Meko garment factory in the Mekong Delta’s Can Tho city on March 24, damaging facilities and causing losses of up to $13 million. 

The company, fortunately, had taken out insurance coverage of more than $24 million.

The incidents have triggered concern among non-life insurance companies about the rising level of payouts over the last few years. 

Payouts are at high levels, estimated at 34.6 per cent of revenue in 2016, 43.3 per cent in 2015, 39.4 per cent in 2014, and 44.3 per cent in 2013. 

Such figures, together with other negative signs early in the year, may make the non-life insurance companies involved reconsider their business targets, including profits and dividends, for the year.

Cautious targets

The non-life insurance sector, though receiving support from new government policies that will create the factors necessary for developing the market, remains cautious about high growth targets out of a fear of the tough nature of the market. 

In talking about business targets for this year, Mr. Tran Hoai An, CEO of BIDV Insurance Corporation (BIC), said its goal is 13.7 per cent growth in premium revenue in 2017, against the 13 per cent recorded in 2016.

Post & Telecommunications Insurance (PTI), meanwhile, has set a target for this year of around 10 per cent, in which motor vehicle insurance is to be $87.8 million, or 60 per cent of total premium revenue, with pre-tax profit of $8.4 million and a dividend of 12 per cent. 

It also aims to focus on increasing premium revenue in different sales channels where the company possesses advantages, including VNPost, bancassurance, and telesales.

According to Mr. Le Van Thanh, CEO of Bao Minh Insurance, non-life insurers should consider their growth targets carefully due to the market’s current circumstances. “Bao Minh’s growth in 2016 was 10 per cent,” he said. 

“Traditional products, including motor vehicle, technical, and construction insurance still account for 90 per cent of the company’s total premium revenue.” 

He also revealed the company’s goal for 2017 was 12 to 13 per cent growth in premium revenue.

2017 is expected to exhibit a range of factors that will affect business strategies. 

The Petrolimex Joint Stock Insurance Company (PJICO) has lowered its targets this year, to growth of 5.5 per cent from premium sales of $109 million along with a decline in pre-tax profit by 11.5 per cent. 

PJICO last year recorded positive business results, including 11.2 per cent growth in total premium revenue and pre-tax profit of $5.7 million, up 13 per cent.

According to some industry insiders, non-life insurance companies being cautious in constructing business criteria for 2017 and looking at sales channels is completely understandable. 

One commented that companies, when preparing business strategies, must base them on many elements, for example growth in the economy and forecasts of possible difficulties.

“This is the proper time for non-life insurance companies to concentrate on continuing their restructuring and enhancing their competitiveness, customer services, and administrative management,” he said.

In 2016, revenue from non-life insurance premiums was estimated at $1.6 billion, up 14 per cent against 2015. 

In terms of business lines, motor vehicle insurance led, with revenue of $515.7 million and growth of 21.1 per cent, accounting for 32.3 per cent of total premiums. 

Health insurance was $415.6 million, up 24.3 per cent, and accounting for 26 per cent, according to figures from the Insurance Association of Vietnam (IAV).

Top 5 companies in non-life insurance market

Source: ISA 2016

Assets and loss insurance was $237 million, down 9.6 per cent and accounting for 14.9 per cent, fire insurance reached $145 million, up 14.3 per cent and accounting for 9.1 per cent, and cargo insurance was $97 million, down 4.3 per cent and accounting for 6.1 per cent. 

Motor vehicle and health insurance have accounted for the largest parts of non-life insurance because of the highest payout rates. 

As a result, this year is forecast to be a tougher year for non-life insurers because of government increases to hospital and pharmaceutical costs.

Last year marked the first time the Bao Viet Group was the leading finance and insurance company in Vietnam, earning revenues of $1 billion. 

PVI retained the leading position in insurance, with $297.6 million, up 5.03 per cent for a market share of 18.65 per cent. 

The remaining four leaders were Bao Viet, with $278 million, up 8.65 per cent for a market share of 17.41 per cent, Bao Minh, with 133 million, up 7.5 per cent for a market share of 8.3 per cent, PTI, with $132.5 million, up 22.7 per cent for a market share of 8.3 per cent, and PJICO, with $108.2 million, up 10.6 per cent for a market share of 6.8 per cent.

Slow growth

Figures from the Insurance Supervisory Authority (ISA) under the Ministry of Finance, show that insurance premiums totaled around $3.78 billion last year, representing a rise of 22.6 per cent over 2015. 

Non-life premiums were estimated at around $1.6 billion, up just 14 per cent over 2015 and much lower than the growth rate in life insurance premiums of 29.8 per cent and in total market growth. 

Moreover, last year’s growth slowed from the 17.2 per cent recorded in 2015.

The slowdown is said to have come from negative growth in assets and loss insurance, which was down 9.6 per cent against 2015. 

This is the fourth consecutive year the business line has fallen since 2013, when it was down 11 per cent, then 7.9 per cent in 2014 and 3.9 per cent in 2015. 

The decline also comes from shutdowns at a number of large factories, which led to less demand for non-life insurance. 

Assets and loss insurance should have significant potential but only accounted for 14.9 per cent of premium revenue last year.

Cargo insurance also saw negative growth in 2015 and 2016, with premiums of $97 million last year, down 4.3 per cent, for a market share of 6.1 per cent. 

The declines came at a time when import and export turnover have increased.

Premiums and payouts, by year

Source: ISA 2016

Motor vehicle insurance, especially for motor cars, has continually recorded the highest growth and market share in the non-life insurance market over recent years. 

Growth was an impressive 32.3 per cent in 2016. 

The figures raise the question of why Vietnamese people focus on insuring their motor car but no other assets. 

Some insurance companies have been pioneering apartment insurance for more than five years, including BIC, Bao Minh, PTI, and a number of foreign insurers, after recognizing the demand and potential of the segment. 

The product is yet to become widely popular, however, due to high premiums and conditions, so has been unable to attract a large number of customers, according to BIC.

Competition in Vietnam’s non-life insurance sector has been described as happening quietly but fiercely. 

Maintaining their position in the marketplace has been a goal for survival by almost all non-life insurance companies, through broader sales channels and taking advantage of lesser rivals. 

According to PJICO, the non-life insurance market this year still faces a host of challenges from the fierce competition in acquiring market share along with insurance premiums and the terms and conditions of products launched into the market. 

“We will make drastic changes in product and service quality, to bring more added value to our customers,” a company representative told VET. 

Bao Minh’s development targets this year have been focusing on promoting its sales network together with introducing two new types of products that relate to medical health and assets insurance. 

PTI, meanwhile, will continue to maintain its stable growth by expanding into products with potential in the market, in combination with diversifying its distribution channels via telesales, online sales, and bancassurance, according to Mr. Bui Xuan Thu, CEO of PTI.

According to Mr. Phung Ngoc Khanh, Director of the ISA, Vietnam’s economy is forecast to continue to post high economic growth of around 6.5 per cent this year. 

The government also plans to focus resources on boosting the services sector, including the insurance market. 

“There is much room for growth in the insurance market, such as in agriculture,” he said. At the same time, demand for insurance products continues to rise amid the country’s rapid international integration, coupled with improved awareness about the role of insurance.

Mr. Phan Kim Bang, Chairman of the IAV, said that insurance companies expect the government’s policies to create a framework for the development of new products, such as insurance for public assets and disease. 

The framework is expected to be unveiled soon. The insurance market is poised for strong growth, he added, with increases expected at more than 14 per cent for non-life insurance this year.  

VN Economic Times