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Insurance game no fun at all   2009-06-22 - TBKTSG

Insurance game no fun at all
Passengers walk past the Ho Chi Minh City branch office of Bao Viet, Vietnam’s biggest insurer  
Ferocious undercutting combined with hefty payouts have battered big and small insurance companies alike.


Overall premium revenue in Vietnam last year mainly came from the lucrative motor vehicle insurance policies, which were up nearly 25 percent from 2007, yet still the majority lost money.

The Association of Vietnamese Insurers (AVI) General Secretary Phung Dac Loc says new insurers and new branches of established firms opt for motor vehicle insurance as every vehicle owner must have it by law.

On average, compensation payouts took care of 58 percent of the industry’s revenue from policy premiums.

For QBE of Australia, the proportion was 84 percent, according to data compiled by AVI.

Similarly, Bao Long paid out 81.6 percent, Post and Telecommunication Joint Stock Insurance Company 73.7 percent and Bao Minh 73.3 percent.

There were only 10 insurance companies in Vietnam in 1999, but by last year there were 29 non-life insurers, 11 life insurers and 10 insurance brokerages.

With 60 branches nationwide, the competition for market share is fierce.

Unlike sectors where large companies laden with cash can steamroll the small fry, the big insurers have no choice but to lower their premiums when their smaller rivals start undercutting them, or else lose clients.

Analysts blame the rampant price war on the insurance companies’ practice of basing their sales commissions solely on the number of policies sold without regard for the premiums or possible claims.

Figures from AVI show a mere eight of the 27 non-life insurance companies made a profit last year, and little of that came from insurance itself.

AVI highlights the fact that most of their profits came from non-core activities like putting money in the bank and collecting the interest.

The growth of non-life insurance is tipped to be slower this year than last owing to the economic contraction, which is forcing the insurers to reduce their overheads as much as possible.

As evidence of the sector’s distress, a report from the Vietnam National Reinsurance Corporation says that insurers of ship hulls were pummeled from 2001 and 2007, when their compensation payouts exceeded their income from premiums.

Low disbursement of project funds from abroad is also hurting Vietnam’s insurance firms as foreign companies are among their biggest clients.

In a recent report, the Foreign Investment Agency says foreign direct investment in Vietnam plunged nearly 90 percent in January-May from a year earlier to US$2.7 billion.

Life insurers too have had a tough time since the middle of 2008, when the number of clients canceling policies before maturity to deposit the money in the bank rose sharply.

Bank deposits became much more appealing when the central bank raised its key rate, which the banks use as a guide for their deposit and lending interest rates, to counter the heavy bout of inflation last June.

According to official statistics, the total value of expired insurance policies rose 26.17 percent from 2007 to 2008, while the number of polices canceled before maturity grew 26.78 percent.

AVI General Secretary Loc bemoans the standards and ethics of today’s insurance agents and blames the insurance companies for recruiting as many agents as possible without screening them first.

He thinks insurance firms should restructure their operations, fix the agent problem, and accept that the prospects for growth in the near term are limited.

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