Bancassurance on the up in Vietnam

Bancassurance on the up in Vietnam

According to the Insurance Association of Vietnam (IAV), while remaining a nascent market in Vietnam, the contribution of the bancasurance channel to the total revenue of the Vietnamese insurance segment has experienced a promising increase recently. The IAV’s latest tatistics revealed that in the first six months of 2019, bancassurance recorded premiums of VND8.3 trillion ($360.9 million), which made up for 17.2 per cent of life insurance’s revenue in Vietnam, proving its increasing importance in banks’ and insurers’ profits.

Bancassurance is also reported to be the strongest growing service in TPBank’s performance in the first six months of this year, adding VND249.4 billion ($10.8 million) to the bank’s revenue and accounting for 41 per cent of the lender’s total income.

In the case of MBBank, revenue from bancassurance transaction in the first half of 2019 surged sharply by 86 per cent over the same period of 2018 to more than VND1.81 trillion ($78.7 million). At present, bancassurance is creating about 60 per cent of the bank’s total profit. The high growth momentum also continued for other lenders such as Techcombank, VPBank, Sacombank, among others.

According to researchers at Saigon Securities Incorporation, insurance premiums through bancassurance would hike 30 to 40 per cent this year.

Economist Nguyen Tri Hieu said, “The bancassurance channel has high growth potential backed by an increasing number of middle- and high-income earners, as well as better awareness of insurance from local people.”

He added that on the one hand, banks can diversify their sources of income, reducing the heavy reliance on lending in the context of tensions from non-performing loans. On the other, insurers can penetrate the vast customer database of financial institutions and expand beyond the traditional agency distribution model.

President and CEO of Manulife China Bank Life Assurance Corporation Jude Gomes told VIR in a previous interview that the country’s market will see significant improvements in the way banks and insurers collaborate.

“Bancassurance will become one of the main distribution channels, responding to the trend of channel diversification, emerging omnichannels, and a customer-first strategy in Vietnam, aiming to bring the utmost convenience to customers, and positively contribute to the business results of banks and insurers,” said Gomes.

Over the past few years, insurers have been gearing up to enter into partnerships with Vietnam’s financial institutions in a bid to boost bancassurance activities. For example, earlier this month, Hong Kong insurer FWD Group outbid competitors including Prudential to buy Vietcombank Cardif Life Insurance, which is part-owned by Vietcombank and has a long-term insurance distribution agreement with the bank. The deal is part of a transaction which could reach $1 billion, with the $400-million amount as an initial payment from FWD Group for selling its insurance products at Vietcombank’s branches.

“The demand for bancasurrance, in general, would follow the trend based on GDP. For example, the huge growth of bancasurrance in Thailand and Malaysia can be explained by their good GDP index. The average GDP per capita in Thailand and Malaysia are $7,000 and $10,000 respectively. While that number of Vietnam remains modest compared to its regional peers, around $2,500, we firmly believe there will be an influx of investment focusing on bacassurance activities down the road,” said Sanjay Chakrabarty, head of Consumer Bank and deputy CEO at Orient Commercial Joint Stock Bank.

A local banker told VIR that the stable earnings from co-operating with insurers would complement the more volatile profits from traditional banking activities, which are being squeezed by lower interest rates. Although Vietnam’s bancassurance market has witnessed a great transition, there are still some barriers to overcome. The fierce competition has led some non-life insurers to offer up to 20 per cent of the revenue to persuade the bank to accept and become their exclusive partner.

According to Nguyen Tien Hung, deputy head of the Department of Insurance and Financial Risk Management at the University of Economics in Ho Chi Minh City, insurers implementing the policy of a higher commission payment to entice banks will cause certain disturbances to the customer care activities of an existing insurance enterprise.

“This leads to customers of insurance agents suddenly becoming customers of a bancassurance package. All consulting activities and risk assessments before contract renewal become unfair for the bancassurance system,” Hung asserted.

According to Dinh Van Linh at the Law Faculty of the Banking Academy of Vietnam, although the legal corridor on bancassurance is complete, there are still some difficulties in implementing the process, with it required to have synchronous solutions and orientations.

“It is necessary to redefine the role of banks in insurance business activities in contributing capital or buying shares in the direction that banks directly conduct insurance business acts. Moreover, lenders should be clear about their responsibilities in the case of invalidation of an insurance contract,” said Linh. “In addition, it is needed to supplement the requirements for insurers in receiving capital contribution or selling shares to banks, and this action should be notified to the Ministry of Finance in advance.”

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