Recent Developments

The Government of Vietnam has recently released a draft decree (Draft Decree) proposing certain amendments and supplements to the current regulations of Decree No. 98 on administrative sanctions applicable to the insurance business sector.1

The Draft Decree aims to update Decree No. 98 to make it consistent with recently issued regulations on the establishment, operations and financial regimes of insurers, brokers and agents, particularly, Decree No. 732 and Circular No. 50.3 According to the Ministry of Finance (MOF), this proposed decree is also to enhance the quality and efficiency of their management and supervision over the insurance market in Vietnam.

Implementation of the existing Decree No. 98

According to an MOF report, since the implementation of Decree No. 98 in 2013, the MOF's Insurance Supervisory Authority applied administrative sanctions to eight (8) insurers and brokers for non-compliance with insurance regulations. The total amount of fines levied were VND 940 million (approx. USD 41,300).

Snapshot of the Vietnamese insurance market

According to the MOF's report explaining on the Proposed Draft Decree, the insurance market of Vietnam has achieved high and stable growth. From 2011 to 2015, the insurance market achieved an average growth rate of 16% per year.

Market growth in 2016 is detailed below:

  • total revenue of the insurance market was VND 101,767 billion, in which the total revenue from insurance premiums was VND 86,049 billion (approx. USD 3.786 billion) (an increase of 22.64%);
  • the total amount of investments by local insurers was VND 186,572 billion (approx. USD 8.209 billion) (an increase of 16.49%);
  • the total assets of the insurance market were VND 239,413 billion (approx., USD 10.534 billion) (an increase of 13.94%);
  • the total owners' equity capital sources of the insurance market was VND 52,720 billion (approx. USD 2.32 billion) (an increase of 16.24%); and
  • the total amount of actually paid insurance proceeds and indemnities was VND 25,872 billion (approx. USD 1.138 billion).

Specific amendments proposed under the Draft Decree

a. In relation to the requirement of registration of vehicle insurance products

Last year, Decree No. 73 required non-life insurers to register policy wording (terms and conditions) and premium schedule of vehicle insurance products before selling. Accordingly, the Draft Decree adds an administrative sanction of VND 20 million to VND 40 million (approx., USD 890 - USD 1,336) for any violations of this requirement.

b. In relation to the appointment of directors and officers

Under the Draft Decree, an administrative fine ranging from VND 40 million to VND 60 million (approx., USD 1,780 - USD 2,672) can apply to any of the following violations:

1. appoint the same person as Director or Deputy Director of a branch of a foreign insurance company who concurrently holds the position of the head of operational departments of such branch; or

2. appoint the same person for an actuary of a local insurer who concurrently holds the position of General Director/Director (i.e., CEO) or Chief Accountant.

The Draft Decree clarifies that a local insurer can be sanctioned if such insurer fails to appoint an actuary in accordance with the legal requirements. Particularly, for any such non-compliance, the violating insurer can be subject to an administrative fine ranging from VND 120 million to VND 140 million (approx. USD 5,344 to USD 6,234).

In addition, in the event that an appointed Supervisor or Head of an Internal Control Department fails to meet the qualifications and criteria required by the current law, the relevant insurer can be subject to a fine ranging from VND 80 million to VND 100,000,000 (approx., USD 3,560 to USD 4,453).

c. In relation to investment activities of local insurers

Under the Draft Decree, a local insurer may be subject to a fine ranging from VND 1.2 billion to VND 1.4 billion for any violations against any of the following:

1. make invesment(s) in an amount of money which exceeds 30% of such insurer's total investment capital sources in:    

  • companies, which are in the same group of such insurer; or
  • a group of companies which have reciprocal ownership; or

2. make investments from such insurer's owner/equity capital in a way and at a level not in compliance with the current relevant laws.

All the above levels of monetary fines are applicable to organizations. For individuals, the fines will be reduced to 50% of the corresponding ones applying to organizations.

d. Other proposed amendments

The Draft Decree also makes some other amendments/updates in terms of the management and use of capital and assets, retention levels for re-insurance, insurance fraud and indemnification, capital ownership ratios and reporting requirements.

Actions to consider

In light of the above developments, local insurers may need to review their internal regimes on legal and compliance issues to cover local legal updates. In the meantime, however, as these regulations are still in draft form, please let us know if you have any comments, questions or suggestions.