Solutions For Life Insurance Market
The State Bank of Vietnam (SBV) is drafting a ministerial circular which may greatly impact the life insurance market. The draft circular specifies that commercial banks are disallowed to act as sales agencies of investment-linked insurance products, as these products can cause confusion with some banking products. The bancassurance crisis
In 2023, the life insurance industry fell into crisis. Hardly could anyone imagine that life insurance revenue would plunge as much as 50%. Bancassurance as a prime distribution channel of many insurers as well as the percentage of investment-linked products took a sudden nosedive. According to figures from the Vietnam Insurance Association, the decline in revenue and the number of new life insurance policies for investment-linked products drove down total revenue and the number of effective policies by 10% over the previous year.
The crisis deepened when five life insurance businesses were inspected by authorities. According to a recent announcement by the Ministry of Finance, those five insurers committed violations as they let their staff provide ineligible investmentlinked insurance products and their compliance with accounting regulations regarding corporate income tax was problematic.
The consequence of massive development and lax management of bancassurance was a high rate of insurance contract cancellation in the first year, at 60% and even 70% at some businesses. The cancellation caused great losses for customers in the short term and for insurers or the insurance industry in the long term. The investment plans of insurance businesses could hardly be stable with a high contract cancellation rate.
Despite the crisis, new revenue of the industry and that from investment-linked products made up a big share, at 60.7% and 70.3% respectively. This indicated that the market had strong demand for these products.
More flexible solutions needed
The draft circular of the SBV is aimed at regulating insurance sales agencies that are banks and banning investment-linked insurance products on sale at those banks. Whatever the reason may be, the prohibition of a product which has great demand and is deployed through a traditional, effective distribution channel in many countries needs reconsideration.
What will be consequences if the agreements between insurers and banks are broken? Would insurers send their staff to banks on a permanent basis if banks are prohibited from providing investment-linked insurance products? Or would banks and insurers work together to find a coping solution? The issue here is not the distribution channel or the product, but the approach. Everyone can see that because of their pursuit for revenue, insurance businesses and banks have neglected the interests of customers, and even of employees who are forced to achieve targets. A product is useful when customers are voluntary and accept it after getting thorough advice. What will be the rate of firstyear insurance contract cancellation if banks and insurers fully comply with the insurance agency training process and provide products in the spirit of putting customer interests first? Many believe that the rate would be significantly low.
For the common good
The distribution of insurance products in general and investmentlinked insurance products through banks in particular brings many benefits for the relevant parties. Insurers naturally want to maintain and develop bancassurance, an important and effective distribution channel, while banks also want to diversify their incomes from services and their products. On the part of customers, it would be beneficial if they get responsible advice, as they can gain easy access to multiple service products at a single place. Sustainable development is gained only when interests are harmonized, when the benefits go along with the responsibility of the parties concerned. The development must align with the overall growth of the economy and the market, avoiding the pursuit of short-term targets, hot growth and quantity instead of quality.
Investment-linked life insurance products are particular financial products as they combine both insurance and investment. With the development of the financial market and the own advantages of insurance businesses, this is a product meeting the demand of the market well. When combined with the distribution channel through banks, its efficiency is further enhanced.
Bancassurance is currently managed and supervised by both the Finance Ministry and the SBV. The Finance Ministry has already had rectifications through its inspections, which will closely supervise bancassurance, so the SBV should adopt more flexible solutions rather than forbid this business.
In terms of State management and supervision, the protection of consumer interests is a priority, but the issuance of regulations should consider many other aspects and the common good, instead of opting for what is seen as the simplest solution. It is expected that with the rectification of insurance businesses by the Finance Ministry, the SBV will have positive coordination to regain the market confidence for the common interests of consumers, insurers and banks.