Banks cautioned over bancassurance

Banks cautioned over bancassurance

The Vietnamese central bank has emphasised that lenders are not allowed to force customers to buy compulsory insurance products to receive bank loans, even as bancassurance services have become a strategic priority for many.

Insurers have been leveraging bancassurance to gain a foothold in less penetrated markets

The State Bank of Vietnam (SBV) has issued Document No.7928/NHNN-TTGSNH on October 30 on providing guidelines on insurance operations by credit institutions and foreign bank branches for insurance business.

The SBV highlighted that banks are not allowed to associate compulsory insurance purchase with credit granting to customers – in short, “forcing” customers to buy insurance in order to get bank loans is not permitted.

Data from the Ministry of Finance revealed that Vietnam boasted 18 life insurers with combined premium revenues of VND106.6 trillion ($4.6 billion) last year, equivalent to a threefold increase since 2015.

Manulife Vietnam led the market in terms of new contracts for the first time with 17.7 per cent, followed by Bao Viet Holdings and Prudential Vietnam with 16.49 and 15.78 per cent, respectively.

Canadian insurer Manulife has ramped up its presence through tie-up deals with lenders and signed an exclusive bancassurance contract with Techcombank three years ago. Manulife Financial Corporation is now emerging as the leading bidder for British insurer Aviva Plc.’s subsidiary in Vietnam as part of its focus on Southeast Asia. Last December, Bloomberg reported that Japan’s MS&AD Insurance Group Holdings, Inc. and Manulife were mulling over acquiring Aviva assets in Singapore and Vietnam.

Negotiations are underway, and the bancassurance deal is roughly expected to be worth several hundred million US dollars. If the two parties reach an agreement, Manulife would be able to expand its reach via VietinBank – one of Vietnam’s four large state-owned lenders.

Meanwhile, other foreign insurers are also working with financial institutions. For instance, South Korean life insurer Hanwha Life is diligently working on diversifying distribution channels and network expansion. The company has teamed up with Woori Bank and various other corporate agencies such as TCA, Movin, BOM Finance, The World Link, and YAN Financial.

State-owned Bao Viet Holdings, in which the Ministry of Finance holds 65 per cent, is the second-largest insurer. The firm witnessed its share of new contracts drop by 4.4 per cent between 2016 and 2019.

Prudential last year reported profits of VND2.69 trillion ($117 million). The firm also put efforts in bancassurance deals with local and foreign banks such as UOB, Shinhan Bank, PVcomBank, SeABank.

Meanwhile, insurer FWD reportedly paid an upfront sum of around $400 million for a 15-year bancassurance partnership with Vietcombank, while a similar deal between TPBank and Sun Life amounts to around $75 million.

According to Bao Viet Securities (BVSC), FWD was willing to pay $25.6 for each Vietcombank’s customer, while Sun Life had already paid $30.1 for each of TPBank’s customers.

Elsewhere, private lender ACB is now mulling over an exclusive bancassurance deal which would strengthen its operation.

“Such a deal will help ACB bolster its bargaining power with a life insurer, gaining an above-peer upfront sum. ACB delivered excellent bancassurance performance in the year-to-date to scale up its position, ranking third in the first nine months of this year, from fifth in 2019,” said Tran Dang Manh, analyst at BVSC.

Chung Ba Phuong, chairman of TC Advisors, said, “Bancassurance is gaining much popularity, thus insurers are increasing their foothold in the market. It comes as no surprise that insurance companies compete to give large upfront payments of hundreds of millions of US dollars so the banks can distribute insurance products on their behalf.”

Furthermore, Phuong emphasised that the pandemic is highlighting the issues of poor agent quality and is helping the decent ones to differentiate themselves.

“On the flip side, insurers have spent a large amount in marketing campaigns and cooperation with banks to gain a bigger market slice, rather than training their skilled labour force. Consequently, this strategy is a chink in their armour, bringing about poor advice and wrong products being sold,” Phuong explained.

VIR