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The dark cloud on the insurance market
The Vietnamese insurance market has opened widely to foreign investors. However, unlike other business fields, the market has not caught the attention from foreign insurers.
A traffic accident took place in Ha Nam province in late 2010, where two motorbikes collided into each other and one of the drivers died. A car owner in Ha Nam then invented a fake scene and took insurance policies from five insurance companies in five different provinces to get compensation.
After the man got the compensation from three insurers, he was discovered as committing fraud.
The loopholes
In developed markets, it is not easy to commit fraud to get compensation from insurers, because insurers always share the same database. Meanwhile, insurers in Vietnam do not. Therefore, they can easily fall into the traps of the people who deliberately cheated insurers.
“In foreign countries, after vehicles get accidents, the vehicles’ owners will have to bear higher insurance premiums if they take insurance policies from other companies,” said general director of a non-life insurance company.
“Meanwhile, in Vietnam, the vehicle’s owners in similar cases, would be able to bear the same insurance premiums or enjoy lower premiums, because the other insurers deliberately set up low premiums to scramble for clients with rivals,” the continued.
Everyone understands well that they need to share information to minimize risks and create a more transparent market. However, no one has taken any moves to do that.
Phung Dac Loc, Secretary General of the Vietnam Insurance Association, said that the association many times urged its member companies to share information about the “bad clients”, but the call has not been responded.
The problem is that they fear that their clients could be lured by the rivals, according to Loc.
The competition
He went on to say that in the non-life insurance market, it regularly happens that the insurance premiums set up by an insurer are just equal to 50 percent of that of the similar products provided by another insurer. In order to scramble for services, insurers would accept the insurance premiums which are even lower than the floor fees stipulated by the Ministry of Finance.
For example, as for steel products, the lowest bearable insurance premium is 0.14 percent of the total value of the consignment. However, an insurer has been found as offering the dirt cheap premium of 0.06 percent. Meanwhile, in construction and installation, many domestic insurers are offering the premiums which are even lower than that offered by re-insurers.
In order to prevent the insurers’ unhealthy competition, the Ministry of Finance has decided to set a ceiling rate on the commissions that insurance agents can enjoy. However, in fact, the commissions are much higher than the ceiling rate stipulated by the watchdog agency, because insurers use high commissions to attract more agents
Experts have warned that Vietnam will not have a firm insurance market, if all insurers are incurring loss from insurance services. This explains why an insurer reportedly got the turnover of nearly 1 trillion dong, but the real profit from insurance services was just one billion dong.
The fierce competition among insurers also can explain why the Vietnamese market cannot grow up, which only makes up less than 3 percent of GDP, while the average proportions are 8-10 percent in the world.
Under the commitments Vietnam made when joining WTO, the insurance market was one of the first markets Vietnam opened to foreign investors. However, it is clear that the market does not attract foreign investors.
The representative of a foreign insurance company frankly said that they cannot do business in Vietnam, because if they enter Vietnam, they will have to follow the way the operational insurers are following, which means that they will have to break the principles of professional ethics and the corporate governance principles that they committed before shareholders.
vietnament, TBKTSG
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