Ms. Ha Ly, a 31-year-old office worker, intends to buy an apartment in a Ho Chi Minh City-based project connected with HDBank. She needed to borrow VND1 billion ($44,000), and the project consultant suggested the bank could lend her the money if she took out an insurance package with Dai-ichi Life Vietnam. This is one of the conditions for borrowing funds from the bank, and is applied by many lenders in Vietnam. 

Despite being available in Vietnam since 1990, bancasurrance, in which insurers sell products via banking channels, only really started to get underway in 2001. Distribution via the banking system is the main channel for insurers in developed countries, accounting for 60 per cent of total insurance revenue.

Life insurance revenue in Vietnam via bancassurance was estimated at $196 million in 2017, out of VND65 trillion ($2.8 billion) in total, according to the Insurance Association of Vietnam (IAV), increasing to 7.1 per cent from 5.94 per cent in 2016. The insurance market has seen a series of launches between insurers and banks in recent years, as bancassurance holds the promise of growth for both. 

Bolstering cooperation

Cooperation between life insurers and banks has only been paid significant attention over the last decade, as most insurance was previously sold by agents, according to a representative from Hanwha Life Vietnam. “Bancassurance will continue to grow and has great potential,” he told VET.

The first life insurers and banks in Vietnam to link up included Bao Viet Life Insurance and HSBC Vietnam, Agribank and Techcombank, and Prudential Vietnam and Vietcombank. Neither side initially recognized the benefits bancassurance could bring, but in recent years banks have become more active in the field as profits from traditional financial solutions have declined. Bancassurance has therefore been an important factor in boost banks’ growth, as well as insurers’. 

There are three types of cooperation: distribution cooperation agreements, strategic alliances / joint ventures, and financial groups. Distribution cooperation is the most popular type. 

2017 was a boom year for major bancassurance deals, valued in the billions of dollars. Exclusive cooperation is generally extended for a maximum duration of 20 years. For instance, FWD Vietnam and Nam A Bank signed an exclusive 15-year bancassurance partnership, while Manulife has a long-term deal with Techcombank, Dai-ichi Life Vietnam with Sacombank and SHB, Prudential with VIB, Cathay Life Vietnam with IndovinaBank, and, in the latest deal, Aviva Vietnam with VietinBank. 

Competition in the sector is clearly heating up, and insurers large and small are keen to find a banking partner, according to the IAV. 

Such cooperation is win-win, according to industry experts. Insurance companies are experts in offering protection solutions thanks to huge investment in research to understand customer insights and develop tailor-made, affordable products and services. Banks’ strong customer relationships, branch networks, customer base, and widespread brand awareness, meanwhile, all make them an ideal channel. 

Less than 10 per cent of Vietnam’s population currently has life insurance, IAV figures show. The sector is enjoying the benefits from a buoyant economy and the rise of the middle class, which is expected to reach 33 million people by 2020. These represent a major opportunity for further cooperation. “The formation of joint ventures between banks and international insurance companies over the past decade has energized the bancassurance sector, which has seen its market share grow rapidly in recent years,” Mr. Sabbir Ahmed, Head of Retail Banking and Wealth Management at HSBC Vietnam, told VET. “The market witnessed dozens of bancassurance launches last year, which is evidence of how attractive the channel is.” 

Mr. Phung Duy Khuong, VietinBank’s Retail Director, told local media that bancassurance helps all involved: banks, insurers, and customers. “Banks can increase revenue from service fees, ensuring their sustainable development,” he said.

Traditional distribution channels have been the main revenue source for Manulife Vietnam for the last 18 years, but bancassurance is beginning to stand out. Premium revenue from bancassurance grew 166 per cent over the last two years, which CEO Paul Nguyen described as “phenomenal” when addressing the Global Investors’ Conference 2017 in Vietnam in June. Manulife is now teaming up with ANZ Vietnam, Techcombank, VPBank, and SCB. Its premium revenue tripled in 2017 and its market share in bancassurance is now 24 per cent.

As a late arrival, FWD Vietnam used bancassurance to become among the Top 10 life insurers after just a year in the business. With exclusive cooperation agreements with ABBank and Nam A Bank, it estimated premium revenue of VND200 billion ($8.8 million) last year. “Bancassurance is considered one of the most important strategies for the company,” according to FWD Vietnam’s CEO Anantharaman Sridharan.

At the recent announcement of a cooperation agreement with HSBC, Mr. Wayne Besant, Director General of AIA Vietnam, said that revenue from bancassurance channels accounts for more than 10 per cent of the total and is rising.

Obstacles and prospects 

Any cooperation between banks and life insurance companies also faces obstacles. Figures from IAV show that, overall, Vietnam’s insurance sector is still very much led by agents, with agent sales making up roughly 93 per cent of premiums, while the growing bancassurance segment accounts for only 6-7 per cent. Mr. Sabbir pointed out several reasons for this modest proportion, including the fact that local customers still prefer directly dealing with financial product providers. “Insurance companies were the first distributors of protection solutions, forming a common mindset among customers that it is the official channel,” he said. “The innovative concept of banks as one-stop-shops for financial services is still pretty new to the local banking industry.”

The representative from Hanwha Life said that cooperation between banks and life insurance companies requires both sides take time to understand each other’s position, vision, and goals, and both must be equally committed to the concept. 

Many experts agreed that similar to the development of the life insurance market, bancassurance also requires time before better results come in. The initial years of cooperation are largely devoted to building a foundation and creating the right infrastructure for the partnership.

Elsewhere in Asia-Pacific, meanwhile, bancassurance is starting to really take off, representing some 35 per cent of the market in Thailand, China, Malaysia, the Philippines, Singapore, and Indonesia. “Bancassurance contributes just a small proportion of revenue for both banks and insurers in Vietnam, but this will rise and it well become the most exciting field to watch over the next few years,” Mr. Sabbir said.

The insurance sector is set to see 22 per cent growth in premiums this year, a meeting hosted by the Ministry of Finance’s Insurance Supervisory Authority (ISA) to review the sector’s performance in 2017 and set business targets for 2018 heard. According to ISA, insurers are expected to record VND129.2 trillion ($5.7 billion) in premium revenue this year, up 22.3 per cent against 2017, report VND370.8 trillion ($16.3 billion) in total asset value, and reinvest VND305.5 trillion ($13.4 billion) into the economy. Overall growth in and greater awareness of insurance is good news for both banks and insurance companies.

“Bancassurance has been a very promising insurance channel in Vietnam over recent years, though insurance agents remain the most popular. Premiums generated through bank accounts last year accounted for about 7 per cent of the total. Though the channel remains modest, growth is quite high.

The key point is to combine the advantages held by both banks and insurers. As the bank lends to borrowers, it seeks some form of security and asks that they take out life insurance. This channel also creates more revenue and income for banks. For the insurer, bancassurance is a good distribution channel for increasing premium revenue.” 

Mr. Ngo Trung Dung, Deputy Secretary General, Insurance Association of Vietnam (IAV).

VN Economic Times