Vietnam’s insurance market has experienced strong double-digit premium growth in recent years and demand for insurance product is forecasted to continue, according to a recently released special report from A.M. Best Co.
“Insurers have benefitted from an emerging middle class, increased awareness of the benefits of insurance, and the introduction of compulsory lines of business,” Best explained. “This greater take-up of insurance comes as the Southeast Asia country’s economy expands, enabling government spending on infrastructure projects.”
The report, “Vietnam’s Insurance Market Anticipates Continued Strong Growth,” states that the insurance sector has seen premium growth rates in the double digits each year since Vietnam joined the World Trade Organisation in 2007. “However,” the report notes, “while the insurance market is showing strong growth, insurance premium as a percentage of gross domestic product (GDP) remains static at around 1.5 percent.”
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Yvette Essen, author of the report and director of Industry Research – Europe & Emerging Markets, explained that insurers operating in Vietnam “face a range of economic and regulatory challenges; in particular, inflation – which reached 18.8 percent in 2011 – remains a serious concern.” In addition to the economic challenges, she pointed out that “insurance rates are under pressure from the competitive market environment.” She also indicated that “a number of insurers are attempting to improve pricing and terms and conditions, although some companies have faced legal challenges when they have attempted to increase rates.”
In addition the rating agency said it “believes recent and anticipated regulatory changes will lead to stronger insurers and a more structured governance of the sector. The Ministry of Finance is reported to be considering restructuring the insurance sector, classifying Vietnam insurers into four groups according to factors including their ability to meet solvency ratios.”
A.M. Best Senior Financial Analyst Jeff Yeung commented: “While the Vietnamese government has formulated an insurance market development strategy for high growth in the coming years, the restructuring plan aims to create an environment for insurance companies to focus on healthy growth, such as setting profitability and capital adequacy as key business objectives, and strengthening risk management practices and transparency of information. A.M. Best believes the regulatory changes will lead to stronger insurers, as well as structured governance of the insurance sector, which will ultimately benefit insurance consumers.”