Caught in a Crisis of Trust
The turmoil began in early April when actress Ngọc Lan raised concerns about her 74-year life insurance contract, capturing public attention. Despite subsequent clarifications between the insurance company and the actor, the life insurance market entered a severe crisis. Many insurance buyers have accused consultants from various life insurance companies of offering ambiguous and dishonest advice. A notable grievance is the alleged coercion of insurance purchases when obtaining loans from several banks. The peak of frustration was reached when individuals who had savings deposited at SCB suddenly found themselves holding Manulife life insurance policies.
To date, numerous customers are still in disputes with Manulife Insurance Company without receiving refunds. While both parties present valid arguments, the essential issue is the loss of consumer trust. Many are now willing to terminate existing contracts and exercise caution when considering new ones. According to Vietnam Report's analysis, negative sentiments among customers constituted only 2.2% in 2022 but surged to 54% in 2023—a staggering 19-fold increase.
As confidence plummeted, the market's revenue mirrored the decline. General Statistics Office data indicates that total insurance premium revenue (including life and non-life) in the third quarter is estimated at VND 52,900 billion, down 10% compared to the same period in 2022. The preceding quarter also saw a more than 3% drop in total insurance premium revenue compared to the previous year, amounting to VND 61,300 billion. Over the first nine months, total insurance premium revenue is estimated at VND 165,600 billion, nearly a 7% decrease compared to the same period in 2022. This marks the first time in almost a decade that nine-month insurance revenue has experienced a decline. The primary contributor to the market's sales downturn is life insurance, constituting 70% of total market revenue. Notably, insurance premium revenue distributed through banks (bancassurance) showed a significant decline in the first half of 2023, dropping by up to 80% in some areas compared to the same period last year.
Bancassurance, once a thriving channel, has seen substantial growth over the past seven years. In 2016, cross-selling through banks accounted for only 10% of new business sales in the life insurance industry. By 2022, it had become one of the two main pillars, equaling the traditional agent channel. However, the bitter aspect of this success is that insurance buyers through banks often feel coerced, resulting in a high contract abandonment rate within the first year. According to the Department of Insurance Management and Supervision's inspection of four businesses—Sun Life, Prudential, MB Ageas, and BIDV Met Life—the contract abandonment rate for insurance through the banking channel ranges from 30-70% after the first year.
Restoring Trust
In the wake of recent scandals that have shaken confidence in the life insurance market, efforts to restore trust have become imperative. Despite negative rumors, life insurance, at its core, serves as a secure means to reserve finances for the future, replacing income sources in unforeseen circumstances. In many countries, a high percentage of the population owns life insurance—90% in the US, 80% in Singapore, and 50% in Malaysia. However, in Vietnam, only about 11% of the population currently owns life insurance products. The industry aims to increase this to 15% by 2025 and further to 18% by 2030. Achieving these goals requires restoring trust, particularly in insurance sales through banks.
The Ministry of Finance has taken proactive steps to address the crisis of confidence. This year, it plans to inspect 10 life and non-life insurance companies, focusing on business links between insurance companies and banks. Several decrees and circulars have been issued to regulate insurance sales, including those through banks. Decree 46/2023/ND-CP, effective from July 1, 2023, mandates banks engaged in insurance agency activities to establish a separate specialized department. The head of this department must possess three years of experience in the financial sector. The recently issued Circular 67/2023/TT-BTC provides further guidance on the Law on Insurance Business, introducing new regulations.
Circular 67 prohibits banks from advising, introducing, offering, or arranging to sign investment-linked insurance contracts for customers within 60 days before and after the entire loan disbursement date. Beyond regulations on cross-selling insurance through banking channels, the Ministry of Finance imposes additional constraints on insurance consulting agents. During the consulting process, agents must provide complete and accurate information about the product and use documents provided by the insurance company. For complex products like investment-linked insurance, the consulting process must be recorded. In the case of long-term and refundable life insurance contracts, businesses are required to provide a written summary to the insurance buyer, with confirmation from the buyer.
Discussing the new Circular, Mr. Ngô Việt Chung, Director of the Insurance Supervision and Management Department, emphasized the aim to improve the quality of consulting. The goal is to prevent consultants from pressuring customers into insurance products that do not align with their needs and financial capabilities. These regulatory measures and industry initiatives collectively seek to rebuild trust and ensure a more transparent and customer-centric life insurance market in Vietnam.
