The Prime Minister of Vietnam recently issued Decision No. 242, approving Vietnam's Restructuring Plan of the insurance business market until 2020, oriented towards 2025 (Plan) following the final proposal of the Ministry of Finance (MOF)'s Insurance Supervisory Authority of Vietnam.1
The Plan sets out the following overarching objectives: (i) developing a safe, sustainable and efficient insurance market that meets the diversified insurance demands and ensures social security; and (ii) enabling insurance enterprises to possess strong financial capacity, management capacity of international standards and competitiveness within the nation and region. The Plan also sets out objectives that are more specific and action plans of the restructuring of the insurance market in the coming years, which will have a significant impact on insurers, brokers and agents operating in Vietnam.
Specific Objectives for the restructuring of Vietnam's insurance market
The Plan's detailed objectives for the insurance market are as follows:
- The average annual growth rate of total assets, total investment amounts, total operational reserves, total equity capital, total revenue of the insurance market will be 20% by 2020 and 15% from 2021 until 2025.
- By 2020, 11% of the population of Vietnam will participate in life insurance policies; by 2025, the number is to have reached 15%.
- By 2020, the average rate of revenue from insurance premiums over GDP will be a maximum3% and is expected to increase to 3.5% by 2025.
- Insurance products will be increasingly diversified to meet the different insurance participation needs of organizations and individuals in Vietnam. Modern technologies will also be utilized for all insurance business operations to facilitate clients' participation in insurance policies.
Solutions for the restricting of the insurance market until 2020, oriented toward 2025
To achieve the aforementioned restructuring objectives, the Plan sets out the following key solutions, among other things, to be implemented in the coming time:
- Improving the legal framework of insurance business sector of Vietnam, including studying and proposing to the Government and the National Assembly a draft new Law on Insurance Business for finalization and approval in 2020,in accordance with the principles of: a risk-based management model, meeting the requirements in an international integration context; enhancing the activeness and responsibility of insurance enterprises in their business operations' management of capital, management of risk and human resources; and simplifying administrative procedures and strengthening post-examination mechanisms;
- Enhancing the transparency of information of the insurance business market;
- Developing and professionalizing insurance distribution channels in line with the Industrial Revolution 4.0, and formulating the conditions, standards for operation for providers of auxiliary insurance services (e.g., risks consultancy and management; actuary services; compensation management; damage assessment; etc.).
- Converting the management model of the Insurance Supervisory Authority of Vietnam from a "compliance-based supervision" model to a "risk-based supervision" model and reflecting this model into the proposed new Law on Insurance Business by 2020;
- Studying and considering the establishment of an Insurance Development Institute (to be converted from the existing Insurance Research and Training Centre of the Ministry of Finance) to exercise the functions of: (i) proposing the floor insurance premiums; premium determination methods; methods of setting aside professional reserves; (ii) training human resources and issuing professional certificates; and (iii) contributing to the development of legal framework and policies on insurance business sector of Vietnam; and
- Developing an information system to systemize all data on the insurance sector to, among others, (i) support the State management and supervision activities; (ii) develop the basis for calculation of net insurance premiums; and(iii) control risk and insurance frauds.
In addition, the Plan provides for further solutions and action plans to be implemented specifically within the life insurance space and separate solutions and action plans for the general / non-life insurance space.
Actions to consider
In light of the above developments, insurers, brokers and agents may want to review and take into account this Plan when preparing their business plans going forward.
If you would like to discuss opportunities for your insurance business, more specific proposed solutions and plans for life insurance and general insurance spaces and how our Firm can assist you with your operation in Vietnam, please do not hesitate to contact us.
1Decision No. 242/QD-TTg of the Prime Minister dated 28February 2019 approving the Plan on Restructuring the Stock Market and the Insurance Market until 2020, oriented toward 2025 (Decision No. 242).