This situation has been created by life insurance companies themselves who have been hiring dubious consultants and customer care officers who then aggressively try to sell life insurance package deals to unwitting people only for their own profit by way of commissions. This has led to the present state where life insurance is so distorted that people have lost faith in it as a viable scheme.
Maintaining foothold
In the last ten years it has become common practice for life insurance companies to cooperate with banks to maintain a foothold of the market. There have been collaborations worth trillions of Vietnam dongs between various insurance companies and banks such as VietinBank and Manulife, Vietcombank and Vietnam Life Insurance Company Limited (FWD), Techcombank and Manulife, Vietnam Maritime Commercial Joint Stock Bank (MSB) and Prudential, Vietnam International Bank (VIB) and Prudential, Sacombank and Daiichi Life. Such collaborations have a common term period of about fifteen years. Last year VPBank and the AIA group extended their exclusive collaboration agreement to sell insurance through their banks for a period of 15 to 19 years.
In theory, insurance is a type of financial service and is a policy to ensure social security in the economy. However, in Vietnam life insurance chases quantity rather than quality, and joining is easy but receiving compensation is difficult. This is because most of the consultants are only interested in signing a contract with a customer to meet their target and in the process overlook customer care and support to the people.
This has led to immense loss of faith among the people toward life insurance. This is one of the reasons why the people participating in life insurance is still very low. In 2017, less than 8 percent of the population participated in life insurance and this figure has currently only risen to just 11 percent. Hence, life insurance companies rely on banks to lure customers.
This collaboration between life insurance companies and banks has borne fruit for insurance companies as banks are very proactive in selling insurance to their customers. For instance, VIB joined this field late but four years in a row it ranked among the top three in terms of sales and distribution of insurance products. The bank said that they are planning to negotiate with Prudential to extend the contract for a further 13 years. MB Bank and Techcombank have also built digital insurance sales platforms to help reduce time and increase efficiency in insurance sales.
Because of the proactiveness of banks, the insurance channel in banks contributes a substantial amount towards state revenue. Data from the Ministry of Finance shows that this activity accounts for about 20 percent of the total revenue of the life insurance market. At the same time this channel is expected to account for about 50 percent of new revenue by 2025.
Chasing profit
This collaboration with banks leads to huge benefits for insurance companies. The banks apply prepaid fees from VND 3,500 to VND 10,000 bln and at the same time, the banks also enjoys revenue from cross-selling life insurance packages. Therefore, despite the difficult economic situation in recent years some banks still earned substantially through this channel.
In 2022, VBank recorded an increase of nearly 42 percent in revenue from the insurance business to reach VND 3,354 bln in sales revenue. The bank also earned about VND 8,000 bln from renegotiating an exclusive insurance distribution cooperation agreement with AIA Vietnam. This helped in increasing net profit to VND 10,583 bln, five times higher than in 2021. Last year, VIB bank received insurance commissions of nearly VND 1,303 bln, equivalent to 41 percent of total revenue from insurance service activities. Techcombank also saw revenue from insurance cooperation services reach more than VND 1,750 bln.
In addition, banks also get other benefits from insurance companies. In a report released in early 2023, SSI Securities Company said that by the end of the third quarter of 2022 the investment portfolio of insurance companies was mainly allocated to deposits, accounting for 51 percent to 90 percent of the portfolio. The rest was invested in government bonds and a small part in stocks. Hence, the insurance company is not only a partner but also a customer of the bank.
The problem is that banks distribute insurance by using dubious means. Normally if a bank employee signs an insurance contract with a customer, they receive a commission amount. However, this contract does not come voluntarily from customers. Since the bank staff have to meet with a target, they entice customers to buy insurance, and even deceive customers with false notions. As a result, many life insurance contracts are signed only to fulfill loan conditions. In 2022 there was even a warning about the increase in the rate of cancellation of insurance contracts in banks.
The State Bank of Vietnam requires banks to strictly comply with all legal provisions and bank officers may not force or compel customers to buy life insurance in any form. This fact has been overlooked by banks because of the more profit gain in selling life insurance to unwitting customers. Many banks have ignored regulations and laws governing the distribution of insurance through the banking channel. To rectify this situation, the Ministry of Finance has been conducting inspections on a number of insurance companies from the end of last year until now with the participation of the State Bank of Vietnam.
