The Ministry of Finance of Vietnam (the "MOF") recently drafted a proposal to the Prime Minister for the Restructuring Plan of the Insurance Market for the 2017-2020 period (the "Plan"). In relation to the insurance market, the Plan proposes an overall objective for (i) developing the Vietnamese insurance market in alignment with the national socio-economy and financial development schemes; (ii) enhancing sustainable growth and productivity of the insurance market and capabilities to meet the diversified demand for insurance; and (iii) adopting international standards and best practices on insurance business and gradually narrowing the development gap with other countries in the region.
The Plan summarizes the results of restructuring the insurance market in the 2011-2016 period following previous Decision No. 1826, as well as proposing specific implementation schedules for the restructuring of the insurance market in the 2017-2020 period.1
Results of the restructuring of insurance market in 2011 - 2016
According to the Plan, it is reported that for the 2011-2016 period, the total sums insured paid by the local insurers was VND90,000 billion (approx., USD3.963 billion), and the financial capacity, productivity and competitiveness of the local insurers have been improved. Particular results are as follows:
- With an aim to prevent the State monopoly of the insurance market, the MOF has procured certain insurers to accelerate their divestment of state capitals. In the 2011-2016 period, State-owned enterprises divested the whole or a significant part of their stakes in certain local insurers. For example, Vietnam Electricity (EVN) divested its 22.5% stake in Global Insurance Corporation (GIC), the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) reduced its stake in the Bank for Investment and Development of Vietnam Insurance Joint Stock Corporation (BIC) from 78.38% to 51%.
- Insurance products have increased in terms of quantity and quality. It is reported that, currently, there are more than 1,187 products in the Vietnam insurance market, including about 350 life insurance products and 837 non-life insurance products. Some new categories of insurance products (e.g., agricultural insurance, pension insurance, micro-insurance, fisheries insurance) have achieved certain success.
For pension insurance, for example, it is reported that the MOF has licensed for six (6) life insurers to sell pension insurance products in the market.
- The operation network and distribution channels of the local insurers have been expanded. It is reported that the local insurers have established more than 3,044 business locations nationwide.
2. Proposed schedule for the restructuring of the insurance market in 2017 - 2020
Under the Plan, the Government of Vietnam aims to restructure the insurance market by prioritizing four (4) major aspects, namely (i) enhancement of the legal framework, (ii) restructuring of the insurance market, (iii) enhancement of supervision and enforcement, and (iv) international corporation.
2.1 For the first phase until the end of 2018
- In terms of the legal framework, the Government of Vietnam plans to (i) further improve the legal framework for certain types of insurance business, including the implementation of agricultural insurance and micro-insurance, (ii) amend and supplement the regulations on compulsory fire and explosion insurance, and (iii) amend and supplement Decree No. 98 on administrative sanctions applicable to insurance business.2 Currently, the MOF has released the drafts of these proposed regulations. Please see our separate alerts for further detail about these matters.
- The Government plans to continue to implement fisheries insurance pursuant to Decree No. 67.3
- In terms of enhancing the MOF's supervision and enforcement capabilities, the Government plans to complete the regulations and guidance on the criteria for capital adequacy, risk management, professional standards for local insurers, taking into account the international standards. With these regulations and guidance, the MOF aims to facilitate the conversion of their supervision model for the insurance market from "compliance-based supervision" model to "riskbased supervision" model.
2.2 For the second phase from 2019 until the end of 2020
- In terms of the legal framework, the Government plans to (i) conduct a more comprehensive review to revise and improve the current Law on Insurance Business, (ii) formulate and complete a legal guideline for the implementation of digital insurance and other distribution channels, and (iii) complete a legal guideline for the implementation of natural disaster insurance.4
- The Government plans to (i) implement a project specializing in the development of the information system for the management and supervision of insurance business; study and prepare a plan on the development of the information system for insurance business, and (ii) study and determine solvency requirements for insurers.
- In order to improve the MOF's supervision and enforcement capabilities, the Government plans to study and propose solutions to gradually change their supervision model for the insurance market from "compliance-based supervision" model to "risk-based supervision" model, with an aim to enhance the insurers' active roles in their corporate and financial governance and optimize the development capacity of the insurance market.
- In terms of international cooperation, the Government plans to prepare a roadmap for their negotiations on bilateral and/or multilateral treaty (e.g., "new generation" Free Trade Agreements) for the insurance sector in the global integration process.
3. Actions to consider
In light of the above developments, the local insurers, brokers and agents may want to review and take into account this Plan when preparing their business plans.
As this proposed Plan is currently in draft form, local insurers, brokers and agents can recommend further revisions and supplements to the Plan to promote their businesses and improve the business climate in Vietnam.