Vietnam’s insurance industry set for further expansion

Rising income levels and a growing awareness among Vietnamese citizens of the benefits of insurance is on track to steer the industry to double-digit growth in 2016.

Vietnam’s plans to further ease restrictions on foreign investment, at a time when capital inflows are driving robust GDP expansion, will give the sector a further boost, paving the way for overseas underwriters to raise their profile in this growing market.

A strong performer

Insurance was one of the fastest-growing sectors of the economy in 2015, significantly outpacing broader GDP growth, which rose by 6.68%. Premium income climbed by 21.4% to reach VND68trn ($3bn), according to the Ministry of Finance, while total assets grew by 21.7% to VND201trn ($8.9bn).

The non-life segment led sales, accounting for more than 45% of the total and up 14% on 2014. Premium income in the life segment, meanwhile, rose by 29.5%, marking the segment’s fastest rate of growth in a decade.

The sharp rise in product sales has also significantly increased the capital available for reinvestment in the national economy.

According to the Insurance Association of Vietnam (IAV), the industry invested a combined VND152.5trn ($6.8bn) in 2015, up 18% year-on-year (y-o-y). Insurers invested in long-term government bonds in particular, with VND6trn ($267.6m) worth of 20-year bills purchased over the period.

Market potential

While 2015 results were positive, growth came from a narrow base, with penetration rates for non-compulsory products remaining low. Currently, just 6-10% Vietnamese citizens have private life insurance out of a population that tops 92m.

“The low penetration of life insurance in relation to the size of the Vietnamese market indicates great potential for expansion,” Dao Dinh Thi, chairman of Baoviet Holdings, told OBG.

At present, premiums stand at around 2% of GDP in Vietnam, compared to 5.4% in Asia and 3.4% in ASEAN. According to the Insurance Supervisory Authority, the country will be looking to increase this ratio to 3-4% between 2016 and 2020.

Estimates from the International Retail Association suggest that roughly 15% of the population falls into the middle-income bracket, signalling significant opportunities for growth.

“There is a strong correlation between rising incomes and openness to life insurance products,” Pham Quang Tung, chairman of BIDV - MetLife, a joint-venture between US-based MetLife and the Bank for Investment and Development of Vietnam (BIDV), told OBG. “This will be an important driver of growth in the life segment in Vietnam.”

Local insurers are also looking to extend their reach through bancassurance, which, although relatively new to the market, is seen as a powerful vehicle for boosting penetration, according to Takashi Fujii, chairman of Japan’s Dai-Ichi Life Vietnam.

“While the bancassurance model is still in its nascent stage, it has already expanded to account for 5% of sales,” he told OBG.

Foreign investment, local opportunities

The government lifted restrictions on foreign investment across a variety of sectors in 2015 in a bid to stimulate capital inflows, with the number of prohibited sectors reduced from 51 to six in July.

In the months that followed, registration of new businesses rose markedly, with 94,000 businesses established in 2015 – a record high and a 25.7% y-o-y increase.

The arrival of foreign firms is expected to boost demand for goods and services related to property, social security and health coverage, among others, generating knock-on opportunities for domestic insurance firms. 

While the life segment currently allows for 100% foreign ownership, Vietnam has yet to fully open the rest of the insurance industry to foreign players. The sector was noticeably absent from clarifying regulations on foreign investment caps across 100 subsectors, released in late December.

However, the country has seemingly paved the way for these regulations to be revisited after signing several key free trade agreements with strategic partners in 2015.

Two high-profile agreements – the Trans-Pacific Partnership, due to come into force in 2018, and the newly launched ASEAN Economic Community – are set to encourage the broadening of operations, while also fostering international competition.

According to Phan Kim Bang, chairman of the IAV, the two agreements will promote a more diverse product portfolio, with voluntary pension insurance, insurance for public and government assets, and guarantee insurance on the prospective short list for development.

International interest on the rise

Looking ahead, the next 12 months should see the industry post double-digit expansion, in line with another year of strong economic growth. Projections from the IAV, released in December, put non-life growth at more than 18% in 2016, with the life segment tipped to expand by 25%.

“The market is not yet saturated. There is still time for new companies to enter Vietnam,” Wilfred Blackburn, CEO of Prudential Vietnam, told OBG. “The life insurance market wants new players that are able to grow and bring a fresh approach to the industry. It also requires that current players be more dynamic and innovative to expand the scope of the market.”

Key regional players are already eyeing Vietnam as a potential avenue for growth. Hong Kong-based FWD Group, for example, which has operations in Macau, Thailand, Indonesia and the Philippines, recently indicated plans to expand into Vietnam.

South Korea’s Samsung has expressed an interest in expanding its footprint in the life segment. In September Han Myoung Sup, general director of Samsung Vietnam, told the Ministry of Information and Communications that two local units – Samsung Life Insurance and Samsung Fire and Marine Insurance – were currently exploring investment plans to that effect.

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