Vietnam

 

Supervision and Control

Principal Legislation
The Law on Insurance Business No 24/2000/QH-10 of 9 December 2000, as amended by Law No 61/2010/QH12 of 24 November 2010, is the core insurance legislation in Vietnam.

Decree No 73/2016/ND-CP, in effect from 1 July 2016, amended the Law on Insurance Business No 24/2000/QH-10 of 9 December 2000 and repealed and replaced four of its implementing decrees. It accompanied new enterprise and investment laws which came into force simultaneously.

Supervisory Authority
The Insurance Supervisory Authority Department of the Ministry of Finance (the regulator) supervises the insurance market. Decision No 1313/QD-BTC of the Ministry of Finance (MOF) dated 11 June 2014 is the latest regulation defining the functions, duties, power and organisational structure of the regulator. In summary the regulator is a unit of the MOF and has the functions of advising and assisting the latter in relation to the performance of state management of insurance business nationwide, with the specific responsibility of directly managing and supervising insurance business and related services.

Admitted / Non-admitted
Non-admitted insurance is not permitted in Vietnam because the law provides that insurance must be purchased from local authorised insurers with some exceptions.

Insurance companies are free to place their reinsurance wherever they wish. There is no requirement for overseas reinsurers or for foreign reinsurance brokers handling reinsurance business emanating from Vietnam to be registered with the regulator.

Compulsory Classes

  • Motor third party liability.
  • Aviation third party passenger liability insurance and the internationally recognised additional insurances for scheduled airlines.
  • Professional indemnity (PI) for lawyers.
  • PI for insurance brokers.
  • PI for architects.
  • PI for engineers.
  • PI for securities companies.
  • PI for notaries public.
  • PI for independent auditors.
  • PI for fund management companies.
  • PI for contractors supervising the execution of building works.
  • PI for doctors and medical practioners.
  • PI for organisations and individuals performing tasks involving radiation.
  • Fire and explosion insurance on 16 different types of high-risk industries.
  • A guarantee covering construction tenders presented.
  • Insurance for contract works.
  • Insurance in respect of tenders.
  • Transporters' liability in respect of passengers carried by inland waterway and inflammable/explosive substances carried by inland waterway.
  • Marine oil pollution arising from the International Convention on Civil Liability for Oil Pollution Damage.

State Involvement
The state retains a 100% shareholding in one non-life company. The state has shareholdings of less than 100% in several other companies.

Tariff Classes
Most compulsory insurances (including Motor TP) are subject to statutory tariffs. All compulsory professional indemnity (PI) insurances are understood to be subject to statutory tariffs with the exception of construction (architects and engineers), securities companies, fund management companies, independent auditors and notaries.

Premium Taxes and Charges
VAT is payable on non-admitted insurances in accordance with Article 2 Paragraph 2 of Decree No 123/2008/ND-CP of 8 December 2008 which stipulates that "Vietnam-based production and business organisations and individuals that purchase services (including services associated with goods) from foreign organisations without permanent establishments in Vietnam or overseas individuals not residing in Vietnam shall pay value-added tax".

There are no premium taxes applicable to life and health insurance.

Policy Language
The law is silent on the language to be used in insurance contracts: the only requirement is that the wording must be transparent and clear. Policies for foreign-invested companies tend to be in English and the English wording may be the version that prevails in a court of law.

Non-Life (P&C) Insurance Market

According to the latest available statistics from the regulator the Vietnamese non-life insurance market (excluding health business) recorded growth rates in 2013 and 2014, of 2.78% and 10.72% respectively. Health business written by non-life companies grew strongly in 2013 and 2014 by 28.49% and 13.79%, respectively. The principal drivers of non-life premium growth in recent years have been growth in GDP and associated industrial and commercial activity, as well as the growth of a middle class which is able and willing to protect its assets by way of personal insurance. The market remains highly competitive with property, construction and marine cargo premium rates all reported to have been soft in the period from 2013 to 2015.

The number of non-life insurance companies operating in the market remained constant at 29 in the years 2010 to 2013.

Reinsurance Market

There are two local reinsurance companies: one writes life and non-life reinsurance and the other only non-life business. There are no compulsory cessions to either company

Direct insurers are permitted to accept inwards reinsurance. There are no current relevant statistics showing business volumes. It is thought that local direct insurers do not write any international reinsurance business.

Distribution Channels

There are no available official statistics related to insurance distribution.

Agents have always played a significant role in the non-life insurance distribution system in Vietnam. The precise number of agents is not known but it is reported to be in excess of 200,000. Most agents are reported to work part-time and the turnover of agents is reported to be high. There were twelve insurance brokers licensed by the regulator in 2014.

A percentage of non-life market premium volume is placed direct (currently estimated at about 25%). Internet sales and e-commerce are generally limited. Bancassurance is a minor channel mainly relating to distribution of personal lines insurances, such as PA and travel.

Natural Hazards

Despite the fact that many earthquakes of magnitude 7.0 or higher have occurred, earthquake has never been recognised by insurers as a major hazard in Vietnam.

Vietnam is exposed to typhoons and tropical storms moving from the East Sea (China Sea) which are a regular occurrence between the months of July and November (typhoon season) each year. The whole coastal region is susceptible to storms but the main areas affected are the region between Hanoi and Haiphong in the north, Da Nang in the centre and the area of Vung Tau in the south of the country. These storms are usually accompanied by extensive flooding.

Local companies do not work to return periods and all windstorm cessions have to be made on a sum insured basis. Most reinsurers now impose natural peril annual aggregate limits in proportional treaties.

Flood from both rivers and the sea resulting from typhoons and tropical storms is Vietnam's most severe natural perils exposure. Flooding has become more frequent and more severe in recent years, and at least one flood as a result of typhoon is now expected every year. The main areas of accumulation are Hanoi and Haiphong in the north, where most heavy industry and state-run enterprises are located.

Local companies do not work on a PML basis, ceding to their treaties on the basis of sums insured. Flood is automatically covered under package policies and most fire policies are extended to include full perils cover.

Local companies do not work on a PML basis, ceding to their treaties on the basis of sums insured. Flood is automatically covered under package policies and most fire policies are extended to include full perils cover.