Bancassurance – Vietnam: Negotiating deals in a promising market
The Vietnamese bancassurance scene has been, and continues to be, animated and buzzing with activity. Long gone are the sedate days of yore, when bancassurance partnerships involved incorporated joint-ventures between banks and insurers (such as joint-ventures between Vietcombank and BNP Paribas Cardif in 2009 – which was acquired by FWD in 2019; Vietinbank and Aviva in 2011 – which became wholly-owned by Aviva in 2017; PVI and Sun Life in 2013 – which became wholly-owned by Sun Life in 2016; BIDV and Metlife in 2013; and Military Bank, Ageas and Muang Thai Life Assurance PCL in 2015). This model did not succeed.
Currently, bancassurance deals in Vietnam focus on the distribution arrangements between banks and insurers.
Although there has been positive development of the bancassurance channel in both the life and the non-life sectors, this note focuses on life insurance bancassurance transactions. Most dominant life insurers in the Vietnam market are foreign-invested. In the first 9 months of 2019, the channel contributed life premiums that grew at a rate of 85% over the same period in 2018 and premiums that accounted for 15.8% of the total life premiums. In late 2019 and early 2020, transactions were announced involving the 15-year exclusive partnership between Generali Vietnam and OCB; the 15-year exclusive partnership between Sun Life Vietnam and TPBank; and the 20-year exclusive partnership deal between Prudential and SeABank, adding vigour to the already fierce competition.
The ongoing COVID-19 pandemic has had an impact on bancassurance activities, which have heavily relied on traditional channels of communication with clients. It closed some doors, but opened others: the creative minds running insurance companies have already come up with ideas on how to leverage the booming digital sales forces, as selling insurance through conferences and direct meetings with customers was made non-viable. Vietnam’s large young and tech-savvy population, combined with an increasing demand for omni-channel banking products, holds much potential for e-insurance products.
The key laws and regulations governing the bancassurance business are:
- Law on Insurance Business No. 24/2004/QH10 of Vietnam’s National Assembly dated 24 November 2010 (as amended) (Law on Insurance Business);
- Decree No. 73/2016/ND-CP of the Government dated 1 July 2016 detailing the implementation of the Law on Insurance Business (as amended) (Decree 73);
- Decree No. 98/2013/ND-CP of the Government dated 28 August 2013 on penalties for administrative breaches in the insurance and lottery business sectors (as amended);
- Circular No. 50/2017/TT-BTC of the Ministry of Finance dated 15 May 2017 guiding the implementation of Decree 73 (as amended);
- Joint Circular No. 86/2014/TTLT-BTC-NHNNVN of the Ministry of Finance and the State Bank of Vietnam dated 2 July 2014 guiding the insurance agency activities of credit institutions, and branches of foreign banks for life insurance companies (as amended) (Joint Circular 86); and
- Circular No. 37/2019/TT-NHNN of the State Bank of Vietnam dated 31 December 2019 guiding the insurance agency activities of credit institutions, and foreign bank branches for insurance companies (Circular 37).
The Ministry of Finance (MOF) oversees insurance-related activities in Vietnam whilst the State Bank of Vietnam (SBV) regulates banking businesses. The MOF issues establishment and operating licences for insurers and supervises their operations, while the SBV approves the insurance agency operation of the banks by way of specifying such business in the banks’ establishment and operation licenses.
Life insurance products and health insurance products (including their policy terms and conditions and premium scales) must be ratified by the MOF before they can be marketed.
Scope of activities of agency
The agency model has been and will continue to be a major distribution channel in Vietnam. Agents comprise corporate agents and individual agents. Vietnamese law regards banks as corporate agents and thus bancassurance distribution agreements as insurance agency agreements.
The bank can perform specific tasks as may be delegated by the insurer, e.g. to market/offer/sell the insurance products to customers, to arrange for the conclusion of insurance policies and/or to collect premiums from policyholders. The bank however cannot be authorised (i) to conduct the underwriting process or (ii) to assess and decide on the payment for customer claims (even though, subject to the insurer’s decision on the insurance claims, the bank can pay insurance proceeds on behalf of the insurer upon occurrence of insured events).
Given the increase of multi-purpose packages jointly offered by banks and life insurers in this type of partnership, the conclusion/execution of insurance policies and the conclusion of other banking contracts are generally separated. Each party is independently responsible for the insurance products or the banking products that it supplies.
Contents of distribution agreement
Neither the insurer nor the bank is required by law to submit the distribution agreement (or any ancillary documents) to the regulators for approval. The law however requires a distribution agreement to cover certain key areas, such as the obligations of the bank and the insurer; the scope of agency services; commission and other payments; the effective date and term of the contract; the supply and review of information; arrangements for the collection and payment of insurance premiums; termination scenarios; and dispute resolution mechanisms.
Insurers must comply with the permissible rates of insurance agent commissions set out by the MOF. With respect to life insurance, these range from 2.5% to 40% depending on specific scenarios (categories of products, intervals of premium collection, group coverage or individual coverage).
Insurance companies may compensate banks through commissions (together with other agreed payments of sale bonus and agent supporting amounts) and banks may use such compensation to pay its sales personnel.
Training of sales staff
Bank staff members who are directly involved in insurance agency activities must be duly trained, licensed and managed almost the same way as individual insurance agents are trained, licensed and managed, via the system of the Insurance Association of Vietnam. Vietnamese law obliges the insurer to (i) develop training programs, (ii) coordinate with the bank in providing training courses and (iii) be responsible for granting insurance agent certificates to the bank’s staff members who directly act as individual insurance agents.
The insurer is obliged to submit a quarterly bancassurance report to the MOF within the first 15 days of the following quarter, whereas the bank is obliged to submit a quarterly report on the bancassurance operation to the SBV. The entries of the reports include among other things payments made by the insurer to the bank during the quarter, including total premiums collected, commissions paid/received and other payments made/received.
For further information about key issues of negotiating a bancassurance transactions, please do not hesitate to contact our team below.