Vietnam is among Top 2 attractive markets for overseas insurance enterprises. However, opportunities and risks of fast growing markets are getting more and more complicated.

The latest report from Ernst & Young (EY) on “The shift of insurance industry in emerging markets” shows that, Vietnam is among Top 2 attractive markets for overseas insurance enterprises. However, this report also clearly stated that opportunities and risks of fast growing markets are getting more and more complicated.

Vietnam has potential for fast growth

Mr Saman Bandara, Deputy CEO of EY Vietnam, in charge of insurance and accounting service said that Vietnam is one of fast growing markets with greatest potential. Growth in premium volume and income has brought Vietnam to be among Top 2 attractive markets for overseas insurance enterprises.

EY’s report stated that, in many emerging economies, globalization has rapidly broken many culture barriers, leading to growth in insurance industries. One typical example is the expansion of middle-income class and family members who used to stay at home to take care of the children and elders joining labour force and therefore, they cannot take care of their families as much as before. As a result, sale volume of health care insurance and long-term disability income insurance products has escalated in these countries.

This trend helps to explain fast growth in insurance markets of countries such as Vietnam, Indonesia or Saudi Arabia.

According to forecasts of Insurance Supervisory Authority – Ministry of Finance, in 2014, total market premium volume will be VND51,632 billion, increasing by 9.7% in comparison with 2013, in which, non-life market volume was VND26,380 billion, increasing by 8%; life premium volume is estimated at VND25,252 billion, increasing by 11.5%.

However, experts in insurance industries also gave warnings that the opportunities and risk in developing markets are getting more and more complicated, insurance enterprises need to be more careful in reviewing strategy in order to find suitable investment solutions.

However, growth has not been sustainable

Vietnam insurance market was considered overcoming “turbulence” and landing spectacularly last year. However, in a positive view, the insurance market still had some issues causing headache for managers.

According to evaluation of Insurance Supervisory Authority – Ministry of Finance, life sector still had the issue of attracting skilled employees. There is a lack of these employees since they are normally educated abroad. Another issue is the appropriation of insurance agents of other insurers. This has been warned by authorities but it is still occurring. In addition, management of insurance agents is still limited, for example, it is still unable to collect commission of cancelled policy during consideration time. Some enterprises are still confused in making and implementing business plan, and have not maximized their resources to develop appropriate insurance products.

Whilst for non-life sector, growth has not been stable. Number of insurers with unprofitable business results still accounts for 50% (15/29 enterprises). Insurance fraud is increasing with increasing scale in business lines such as motor vehicle insurance, hull insurance, personal insurance, etc.

Insurers in this sector also have not collaborated, shared information so they have not been able to avoid insurance fraud. In addition, unhealthy competition (undercutting premium, extending terms & conditions, increasing administration expenses, etc.) is still an issue, this leads to difficulties in overseas reinsurance placement, as well as affecting their profitability.

According to Mr. Phung Dac Loc, General Secretary of Association of Vietnamese Insurers, these issues need to be managed from the beginning to avoid insolvency in claims payment.

 “Insurance business is a very sensitive financial activities, with financial investment from premium reserve, claim reserve. In case of insolvency, clients reclaiming premium will disturb financial market”, Loc said.

 (According to Investment Review)