What comes after the huge bancassurance deals?

17-Apr-2021 Intellasia | NDH | 5:02 AM Print This Post

Sharing at the recent seminar on insurance market, Ngo Trung Dung, deputy general Secretary of the Vietnam Insurance Association, said that the proportion of insurance distribution through banking channel (bancassurance) accounts for nearly 40 percent of the sales of new products, doubling after three years. About six to seven years ago, this number was about six to seven percent.

In the recent three years, exclusive insurance distribution contracts between banks and foreign insurance companies have continuously been signed. Most recently, Maritime Commercial Joint Stock Bank (MSB) and Prudential Vietnam signed an exclusive bancassurance deal in 15 years. Saigon Securities Incorporation’s Research centre (SSI Research) estimated that MSB will receive an upfront fee of around 80 — 90 million US dollars, equivalent to 1.9 trillion to 2.1 trillion dong, while Commercial Joint Stock Bank for Foreign Trade of Vietnam Securities Company (VCBS) estimated this number at about 3.5 trillion dong. This contract is expected to be implemented from April 2021.

By the end of December 2020, Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) also signed an exclusive bancassurance deal with Manulife, for which the upfront fee was estimated at about eight trillion dong, according to VCBS. However, the bank may only receive a part of this amount due to a provision related to AVIVA.

Asia Commercial Joint Stock Bank also corporates exclusively with SunLife in 15 years with an upfront fee of 8.5 trillion dong as estimated by VCBS. general director of ACB Do Minh Toan said that this amount of fee will be recorded in 15 years to ensure the stability throughout the corporation with SunLife.

Nearly a year ago, Vietcombank also signed an exclusive deal with FWD of which the value was estimated at one billion US dollars, according to Bloomberg. In particular, an upfront fee of about 400 million US dollars would be transferred in advance as a part of the capital sales in Vietcombank — Cardif joint venture.

In 2018 — 2019 period, the market of Vietnam also witnessed the signing of numerous similar exclusive bancassurance deals such as the deal of Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) with Daiichi on a 20-year term, of Vietnam Technological and Commercial Joint Stock Bank (Techcombank) with Manulife on a 15-year term, of Vietnam Prosperity Commercial Joint Stock Bank (VPBank) and AIA on a 15-year term, etc.

After inclusive deals are signed, banks will participate in distributing the insurance products of their exclusive partners. Banks can cooperate in two ways of introducing or directly selling insurance products. The direct selling method via the bank’s employees will bring higher net revenue and commissions from insurance companies.

For each exclusive contract signed, banks also have their own Key Performance Indicator (KPI) for each insurance company. If the partnership is to take advantage of the bank’s branch network, the bank’s credit staff will be under less pressure.

Typically, a credit staff in Vietcombank said that this year, the target assigned for departments are twice as much as last year. Despite the higher goal, according to this staff, his department is not under pressure and expects to complete the target after half a year.

Vietcombank’s credit staff also said that they do not have to sell insurance products. After the bank signed the exclusive contract with FWD, “each department will have staffs from FWD who are responsible for selling products and working with the department’s head”.

For MSB, after the deal with Prudential, the two parties set a target of 30 percent annual growth in insurance service sales. The net revenue from insurance may account for 30 — 40 percent of the total revenue from service fees for retail banks.

MSB is among the top 10 banks with highest revenue from bancassurance. The bank’s net revenue from life insurance alone grew by more than two times compared to 2019. The rate of maintaining the second year contract at MSB reached more than 80%, the highest in the market. Insurance products of Prudential can be distributed through a network of 263 branches and transaction offices, and a developing digital banking system.

A credit staff of MSB said that after the bank signed the exclusive partnership with Prudential, insurance staffs came to work in each department and insurance operations were trained. Staffs from Prudential will sell products, while MSB will refer clients or can directly sell insurance products in the future.

In the case when banks cooperate with insurance companies and use their own employees to sell products, the pressure of credit staffs will increase. This leads to the situation where borrowers can be “offered” to buy insurance products, and incentives are included when getting the loan packages, such as 0.5 — one percent per annum interest rate reduction or exemption of interest rate for the first month, etc. On the other hand, as said by customers, credit staffs may suddenly bring out the conditions to buy life insurance right before the time of disbursement, creating a difficult situation.

A credit staff of a bank in the Top 5 in terms of total assets, who is tasked to double the insurance target over the past year, said that customers now know about the purchase of insurance. When a customer comes to borrow a loan, credit staffs will recommend a suitable insurance package depending on the needs, income and age of the customer. This staff also shared that if the customer does not have a demand for insurance contract, he can absolutely say no without any obligation. “Even knowing that we will not fulfil the insurance target, we must accept it, because the main thing is to maintain prestige with customers,” said the credit staff. He added the employees of the partner insurance company often shift responsibility for selling insurance products to the bank’s staffs.

In addition to life insurance products, the market also has a loan insurance package which forces customers to buy, focusing on customers borrowing unsecured loans. According to a credit staff, this is an insurance product to commit the loan repayment, a precautionary measure for the case if the customer is unluckily at risk of repayment. The beneficiaries are banks, but the fee payers are customers. The parties that often apply this insurance are banks that offer unsecured loan packages to businesses, individuals, etc. or some consumer finance companies.

The deputy Secretary general of the Vietnam Insurance Association acknowledged that banks have assigned target to their employees and there have been situations when customers are “forced” or offered to buy the insurance products. According to this leader, this is a double-edged sword because it can affect the brand reputation of both banks and insurance companies. At the end of last year, the State Bank of Vietnam issued an official document requesting banks to rectify bancassurance activities and not offer customers to buy insurance products together with their loans.


Category: Finance, Vietnam

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