Solving the risks of bancassurance

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Bancassurance activity in Vietnam has been growing strongly

Deputy Director of the Insurance Supervision and Management Department (Ministry of Finance) Pham Thu Phuong said that since 2000, the legal system of insurance has been issued fully and consistently based on the Law on Insurance Business, to the system of decrees and circulars. This is an important legal basis for insurance businesses to develop and actively do business, including association with banks. The Law on Credit Institutions 2004 and 2010 allowed banks to set up independent insurance companies, so the link between insurance and banks has a legal basis for development and more forms of cooperation.

Bancassurance is widely developed in advanced countries around the world, bringing in over 60% of life insurance premiums in each country.

Speaking at the forum, Dr. Can Van Luc, Economist, Member of the National Monetary and Financial Policy Advisory Council, said that bancassurance is a "predestined relationship" for the mutual benefits of three parties, especially in the context of the Covid-19 pandemic.

For banks, it brings a significant source of non-interest income and improves the income structure; helps diversify business activities; reduces credit risk; raises the bank's mobilized capital from insurance partners; and increases operational productivity of bank staff.

For insurance companies, they can use the existing and wide distribution system of banks, which helps them save the cost of building their own network; have the opportunity to approach the bank’s customers; take advantages of the prestige, brand, and trust of customers towards the bank; increase market share, revenue.

For customers, they can meet increasingly diverse needs, especially in the context of increasing income and increasing risks - uncertainties.

In Vietnam, bancassurance activities in Vietnam have grown strongly. According to statistics of the Insurance Association, both revenue and income proportion from bancassurance of insurers are increasing, from VND65 trillion (accounting for 7.8% revenue from insurance premium) in 2017, to VND130 trillion (accounting for 18.9%) in 2020. By 2021, premium revenue through bancassurance channels has accounted for about 39% of total new revenue. In the first six months of 2022, the bancassurance market grew by 23%, as reported by the Ministry of Finance.

From the banks' side, bancassurance activities contributed trillions of dong to the profit in 2021, of which VIB collected nearly VND1,700 billion of insurance service fees in 2021, accounting for more than 11% of total revenue thanks to the cooperation deal with Prudential; TCB collected VND1,600 billion, up 88.4% compared to 2020 thanks to cooperation with Manulife; and ACB achieved VND1,300 billion through cooperation with Sunlife.

Pham Thu Phuong said that the introduction of the bancassurance channel has increased development ability and create many customer segments that insurers had not previously been able to access due to network limitations such as in remote areas and sparsely populated areas.

Raise awareness for customers

At the forum, besides the benefits, Mr. Can Van Luc also pointed out some risks and inadequacies of bancassurance. The first is quality of consulting; many consultants do not fully understand the complex technical characteristics of insurance products as well as different job priorities.

The second is professional ethical risk, and the third is the risk of contagion (systematic), that is, the occurrence of a risk at an insurance company can affect the commercial bank as an agent or as a partner or as a strategic shareholder or parent company, and vice versa.

The fourth is the lack of information and data, while regulations on allowing information and data sharing, and recognition of appraisal results are not available.

Pham Thu Phuong also said that bancassurance channel has surged. Many bank officers do not provide adequate advice, causing customers to misunderstand insurance products.

Regarding the management, there are now separate regulations for bancassurance, such as on the legitimate rights and interests of the insured on a voluntary basis, in accordance with their needs and abuse of powers and responsibilities to induce or force someone to participate in insurance. Credit institutions also have a responsibility to fully explain insurance products. In particular, according to current regulations, insurance businesses must also take full responsibility for products sold by agents and organizations, including banks.

Mr. Can Van Luc suggested that to limit inadequacies and risks for customers, it is necessary to continue to improve the legal framework, especially bancassurance business (in both life and non-life insurance fields), clearly stipulate rights, obligations and responsibilities of the parties involved. At the same time, regulations allowing mechanisms to share information and data, recognize appraisal results and e-KYC, as well as regulations on confidentiality, security of customer information and data.

Along with that, commercial banks and insurance companies need to invest more in training staff in professional ethics, communication skills and persuasion to avoid misunderstandings, making customers feel unsatisfied or feel forced to buy insurance products. It is also necessary to organize training courses to improve the insurance business for bank staff and to pay attention to the security of customer information.

Commercial banks should coordinate with insurance companies to develop specialized insurance products, suitable for the sales channel through banks, to avoid competition between banks and insurance businesses and meet the needs of both the bank and the customer (for example, insurance products used as collateral for customers when borrowing capital at a bank)

It is especially important to promote the financial education component in a comprehensive financial plan, so that customers are aware of the need for insurance products and understand about insurance products.

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In Vietnam, bancassurance has been around for a long time, but only when the Ministry of Finance and the State Bank of Vietnam issued Joint Circular 86/2014 dated July 2, 2014 guiding the operation of insurance agents of credit institutions, foreign bank branches for life insurance enterprises, this distribution type of insurance products has been protected and facilitated by law for development.