The Vietnamese insurance industry is expected to experience significant change within the coming years as it continues to open up to foreign insurers, and the country’s regulatory framework evolves.
Vietnam’s insurance market has experienced a rapid pace of growth in recent years. A.M. Best Co. said it expects the country’s demographics and economic development will fuel further demand for insurance.
The amended Law on Insurance Business, which will become effective on July 1, 2011, will lead to further development of the insurance market. However, challenges facing the industry are widespread, ranging from intense competition among insurers to inflationary pressures and a need for the industry to nurture talent within a rapidly growing market, said analysts at A.M. Best.
According to A.M. Best’s special report “Vietnam’s Insurance Market Awakening to Further Change,” the insurance industry has opened up since the country gained World Trade Organization status in 2007. Vietnam’s impending Law on Insurance Business, which aims to bring the current insurance legislation more into line with international practices, will help the market to evolve further.
Arina Tek, financial analyst at A.M. Best, said owing to market competition, most of the largest domestic non-life insurers have steadily lost market share to smaller players in recent years. “The operating environment is expected to remain competitive in the near term and stronger players are expected to emerge as a tougher regulatory framework is rolled out,” she said. “Some insurers are expected to unveil plans to list on domestic stock exchanges and to become financial holding companies.”
The report says non-life insurers are likely to continue to rely extensively on reinsurance to meet regulatory demands and support large-risk portfolios. In addition, the threat of potential catastrophes including typhoons and floods in Vietnam is also fueling a need to purchase reinsurance.
Vietnam’s life market is also examined in the report. The awareness of insurance protection is improving, although Vietnam’s young population means many of its inhabitants are unlikely to be actively seeking insurance. As affordability of conventional insurance products is a key challenge to the growth of the insurance market, innovation in microinsurance is essential, according to the report.
“The life market is evolving, with insurers offering more diverse products through a variety of distribution channels,” said Yvette Essen, head of market analysis. “Foreign insurers have built a presence in a relatively short space of time and are expected to continue to dominate the life market.”
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