Local banks have found a new way to enter the lucrative life insurance market and several new insurers are set to be licensed this year.
According to a Ministry of Finance (MoF) source, the authority had received many applications for set-ting up new life insurance businesses. "Amongst those applications, ones from domestic banks are most acceptable. I think in 2010, several life insurance joint ventures between local banks and foreign insurers will receive a licence," said the MoF source.
He said local banks had learnt from Vietcombank which together with Cardiff Insurance set up a life insurance joint venture Vietcombank-Cardiff in 2008. "They aim to focus on bancassurance products," he said.
Bancassurance is the selling of insurance and banking products through the same channel, most commonly through bank come through the extensive customer base banks have.
Some come from opportunities to sell insurance together with some banking products. For example, banks generally insist on life insurance for mortgage borrowers.
Phung Dac Loc, Association of Vietnamese Insurers' (AVI) general secretary, said this model had certain advantages. "Standing alone, technical and financial criteria can be a real hurdle for local financial institutions to step into the life insurance market," said Loc.
Since 2007, stricter conditions over licensing new insurance companies are expected to narrow the market entrance door for local players.
With the Decrees 45/ND-CP and 46/ND-CP released in mid 2007, the MoF set strict conditions on the establishment of new insurance businesses. Accordingly, the minimum chartered capital for non-life insurance companies was raised to 300 billion dong ($18.75 million) from companies, the minimum was raised to 600 billion dong ($37.5 million) from 140 billion dong ($8.74 million). For foreign firms, the parent company must have been operating in the insurance business for at least 10 years before submitting an application in Vietnam.
Additionally, the parent company should have had total assets of at least $2 billion in the year before submitting the application. Loc said with foreign insurers' expertise, a joint venture could easily meet all technical requirements.
"Additionally, the joint venture model between local banks and foreign insurers is a cost-saving through existing branches of local bank, they could save distribution cost," said Loc. By end of 2009, amongst 11 life insurers operating in the market, Bao Viet Life Insurance is the only domestic player.
By end of September, 2009, Bao Viet's market share was 32%, according to AVI data.
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