Vietnam’s insurance sector sees robust growth despite low penetration

Increased product awareness and an expanding economy are fuelling demand in Vietnam’s insurance industry, as the government seeks to attract overseas investors to the market.

In early July South Korean underwriter Mirae Asset Life Insurance announced it would invest VND1.1trn ($48.3m) in Prevoir Vietnam Life Insurance, giving it a 50% stake, with the rest owned by Scor Global Life and Prevoir Vie.

A month later Dinh Hue Vuong, deputy prime minister, reaffirmed the government’s commitment to increasing foreign investment in the local insurance market, particularly in the life segment.

Part of this push involves raising public awareness of the importance of life insurance, helping to boost demand and increase sales potential for companies operating in the sector.

However, with five leading companies – four of them foreign-owned – accounting for more than 85% of all premiums written, the remaining 13 firms in the life segment may have to become more creative in their sales and marketing approach, such as enhanced targeting of rural areas or niche products, or mergers or acquisitions to bolster their positions.

Insurance premiums up 21% in the first half of 2017

Growth of both the life and non-life components of Vietnam’s insurance sector has outpaced that of the broader economy in recent years.

In the first half of this year total premiums collected by insurance companies in the country increased by 21% year-on-year (y-o-y) to reach VND47.17trn ($2bn), split between the life segment’s VND27.83trn ($1.2bn) and non-life’s VND19.34trn ($850m), according to data issued in mid-August by the Insurance Supervisory Authority (ISA).

A report by the Insurance Association of Vietnam (IAV), meanwhile, revealed a similar rate of increase in income from premiums, but over a shorter timeframe, with income rising by 19% y-o-y between January and May to VND68.7trn ($3bn).

Growth in premiums was accompanied by an increase in assets, which rose by 19.1% y-o-y to VND264.64trn ($11.6bn), of which 73.4% was held by companies in the life segment, the ISA report said..

The first half results were in line with ISA forecasts issued early this year, predicting the sector would expand by 20% or more in 2017, due to expectations of an improved economic outlook and increased state support for the sector through policy initiatives.

Industry projections at the start of the year were similarly upbeat, though growth was expected to vary across product ranges, with the life segment to expand by more than 25% and non-life by 14%, according to the IVA.

The industry has maintained the strong momentum it has generated in recent years, with year-end premiums of VND86.6trn ($3.8m) in 2016 representing a 22.7% increase on the previous year.

Low insurance penetration shows potential

While premiums and assets are on the rise, there is still strong potential for further expansion in the industry, as penetration rates for key products are still below regional averages.

With just 7% of the Vietnam’s population holding a life insurance policy and average insurance premiums at $30 – less than half the average for South-east Asia – there is ample room for growth.

Life insurance penetration stands at an estimated 0.4% of GDP, with the total industry contribution accounting for 2%, well below that of regional peers such as Indonesia (2.6%), South Korea (11%) and Singapore (14%).

One reason for this, according to the ISA, is a lack of exposure to insurance products in rural areas, home to 70% of Vietnam’s 93m people. While local and foreign insurers have broadened their market share in urban centres, their reach diminishes outside of built-up areas.

Bancassurance broadens sector reach 

One vehicle for sales growth tipped to accelerate in the medium term – and capable of raising the industry’s profile in rural regions – is bancassurance.

By using banks’ pre-existing networks of customers and infrastructure, insurers are able to increase their presence in the broader market and gain deeper penetration in Vietnam’s secondary cities and rural regions.

An increasing number of underwriters are pursuing tie-ups with local banks, and while bancassurance currently accounts for just 2% of market turnover, this is set to expand as more insurers lock lenders into product distribution agreements.

The first half of the year saw at least five bancassurance deals brokered, according to state media reports, with at least two more set to be finalised in the third quarter. Among the completed deals was one between FWD Vietnam Life Insurance Company, US-based MetLife and AIA.

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