Twenty-four-year-old Ms. Trinh Van Anh, the manager of an international school in Hanoi, does not have a life insurance policy and hasn’t thought about getting one, even though her monthly salary of $1,000 is higher than most of her peers. 

“No one recommends I take out a policy,” she said. “No one knows what life insurance covers, what it gives the policyholder, or what the benefits are.” 

Like Ms. Anh, many other Vietnamese people remain confused about what life insurance can actually bring. 

Even though premiums in Vietnam are on track for yet another record year, the gains are coming from a very low base and foreign insurers have yet to truly crack the market despite dominating. 

It should take only a few more years, though, for them to make more substantial headway.

Foreign insurers’ playground

2016 continued to see robust growth in Vietnam’s insurance market, with the life insurance segment reaching a ten-year high. 

Insurance premiums totaled around VND86.6 trillion ($3.8 billion), representing an increase of 22.74 per cent against 2015. 

Total revenue in life insurance was over VND49.2 trillion ($2.2 billion), an increase of 30.5 per cent, while revenue in non-life insurance was VND36.4 trillion ($1.6 billion), up nearly 12.5 per cent, according to data from the Insurance Supervisory Authority (ISA) under the Ministry of Finance (MoF).

Eighteen life insurers are competing fiercely in the market. Eight of the 18 increased their charter capital in 2016 to improve financial capacity during expansion and business development. 

Manulife Vietnam, for example, raised its charter capital to VND1.82 trillion ($80 million), while Chubb Life Vietnam increased its by VND150 billion ($6.5 million) to more than VND1.55 trillion ($69.5 million). 

According to an assessment from Vietnam Report, among the five largest life insurers, which hold 86 per cent of the market share, are four foreign companies and only one domestic company, Bao Viet Life, which has a foreign strategic shareholder, Sumitomo Life from Japan.

Prudential Vietnam leads the life insurance market with a share of 29.9 per cent, followed by Bao Viet Life with 25.7 per cent, Manulife 12.1 per cent, AIA Vietnam 9.2 per cent, Dai-ichi Vietnam 9.1 per cent, Chubb Life Vietnam 4.4 per cent, and PVI Sun Life 2.3 per cent. 

The remainder share 7 per cent. The five largest life insurers are believed to have posted premium revenue of VND5.8 trillion ($254.7 million) in the opening two months of this year, an increase of 30 per cent year-on-year and accounting for 80 per cent of all revenue, according to the ISA.

Due to market regulations, it is impossible to compete in Vietnam’s life insurance market solely by premiums. 

All products are subject to close scrutiny from the MoF before being launched and premium levels are set. 

There is no way to cut premiums to attract buyers, and players must instead compete in service quality or the provision of value-added packages. 

All life insurers have headquarters in Hanoi in the north and Ho Chi Minh City in the south, with most also having branches and representative offices in major cities and provinces. 

Dai-ichi has 53 branches and representative offices, Manulife Vietnam 22, Prudential Vietnam 21, and AIA 14. 

Bao Viet Life remains the only player to cover all 63 cities and provinces in the country. Most companies over the last ten to 15 years started with agencies and this represents about 90 to 95 per cent of the industry in Vietnam today, with ISA’s figures showing there are currently some 1,000 representative offices and general insurance agencies of life insurers nationwide.

Besides traditional sales methods, life insurers have also started partnering with commercial banks to increase sales and promote products. 

The sluggishness in the bancassurance market in Vietnam over the last few years can be attributed to a lack of service and low awareness among customers about the benefits of bancassurance products, with it only contributing 2 per cent to total turnover. 

Still, analysts believe that the channel holds great potential, with some 35 commercial banks and financial institutions now cooperating with insurers. 

Impediments remain

“The penetration rate of life insurance, usually measured as the number of individuals who actually own life insurance, is still low in Vietnam relative to other Southeast Asian countries,” Mr. Steve Clark, Country Head of Prudential Vietnam, told VET. 

Average insurance premiums stand at only $30 in Vietnam, much lower than the global average of $595 and $74 in Southeast Asia. 

Only 7 per cent of Vietnam’s 90+ million people have life insurance and the sector contributes a modest 2 per cent to GDP, compared with more than 2.6 per cent in Indonesia and 11-14 per cent in South Korea and Singapore. 

The obstacles are many. According to Mr. Phung Quoc Khanh, Director of the ISA, awareness among Vietnamese people about life insurance may have increased but most still don’t think it’s worth it. 

Almost all Vietnamese people are wary or believe it unnecessary to buy insurance because they don’t have a thorough understanding of its importance.

Life insurance products usually involve a long contract term, so many customers are concerned about their ongoing financial capacity. 

At the same time, doubts about foreign life insurers’ commitment to permanent operations in Vietnam add to the low penetration rate. 

Many potential Vietnamese consumers still see insurance as an investment rather than a device to share financial losses caused by poor fortune. 

They prefer bank savings or investing in gold or real estate, where they earn a higher rate of return, than buying insurance.

The low penetration rate also comes from the fact that life insurers have only focused their operations in big cities while overlooking the 70 per cent of the population that still live in rural areas. 

They are also still separating themselves from the general activities of the sector, missing out on promotional opportunities and not playing a role in trying to increase awareness. 

“Life insurers have only focused on building their brand and image and not on activities to promote basic insurance knowledge,” Mr. Khanh said.

While life insurers focus on implementing their own strategies to gain more market share and sign up more customers, their ambitious plans may fail due to problems relating to human resources. 

The rising number of insurance companies in recent years along with a lack of quality insurance training has created a serious shortage of skilled human resources for the sector. 

This has led to unfair competition in attracting experienced employees and insurance agents, one insider said.

While acknowledging the increasing number of life insurance products, Mr. Khanh believes that these are mainly for high-income earners. 

Lower premiums to mid and low-income earners are yet to be introduced, even though they are the majority of the population and are vulnerable to financial incidents. 

Potential enormous

The penetration rate may well change soon, however. 

An emerging middle class with more money to spend and a desire to spend that money to improve their lifestyles are driving a lot of activity in Vietnam. 

The young middle class and rising wages all round are creating demand for consumer products, credit, and investment. 

Soon enough, they will turn to life insurance products, with health now being one of the leading concerns among Vietnamese people, according to a February report released by global market researchers Nielsen.

According to the ISA, life insurers have mainly focused on three of the seven life insurance products in Vietnam: term life insurance, endowment insurance, and universal life insurance. 

This again presents opportunities for others in unit linked and pension insurance products, which can meet the differing requirements of customers. 

With Vietnam’s stock market now being increasingly stable, the possibility exists for the creation of hybrid products, using an asset-based approach to funding long-term care.

With Vietnam now participating in a host of free trade agreements (FTAs) and bilateral agreements, demand for life insurance is set to be boosted by the growing number of expats in the country. 

The arrival of foreign firms seeking to take advantage of preferential policies is also expected to boost demand for goods and services related to property, social security, and health coverage, among others, generating knock-on opportunities for insurers. 

A strengthened economy and new innovations from continued FDI should also impact positively on household confidence and future demand for insurance products, according to Mr. Phung Dac Loc, former Secretary General of Vietnam Insurance Association  (AVI). 

In a move to facilitate the growth of the insurance sector in general and life insurance in particular, Decree No.73 came into force on July 1, 2016, prescribing new regulations on the licensing, organization, and operations of financial institutions, with specific regulations on investment portfolios and ratio and reserves. 

This requires that life insurers consider investment strategies to ensure customer benefits together with risk management and liquidation, which hint at greater competitiveness. 

Key regional players already eye Vietnam as a potential avenue for growth. 

The Hong Kong-based FWD Group, for example, which has operations in Macau, Thailand, Indonesia and the Philippines, broke into Vietnam in November last year. 

South Korea’s Samsung has also expressed an interest in expanding its footprint in the life segment. Last September, General Director of Samsung Vietnam Mr. Han Myoung Sup told the Ministry of Information and Communications that two local units, Samsung Life Insurance and Samsung Fire and Marine Insurance, were currently exploring investment plans.

Mr. Wilfred Blackburn, CEO of Prudential Vietnam, believes that Vietnam’s life insurance market is far from saturated. In fact, he believes there is still time for new companies to enter the country. 

“The life insurance market wants new players that are able to grow and bring a fresh approach to the industry,” he said. 

“This also requires that current players be more dynamic and innovative to expand the scope of the market.”  

VN Economic Times