Confidence crisis impact to linger as Vietnam insurance firms target 5-10% growth

Research firm Vietnam Report says the crisis of confidence seen in the life insurance market in 2023 will continue to affect the market this year.

About 32% of respondents expect the national economy to grow steadily at 5.5% this year, creating a positive and favorable business environment for insurance businesses.

When businesses and consumers become more confident about economic prospects, they tend to invest and spend more, leading to increased demand for insurance, the report notes.

Insurance penetration over GDP in Vietnam is currently at 2.3-2.8%, lower than the average of 3.35% in ASEAN, 5.37% in Asia and 6.3% in the world. The reasons include limited public awareness of insurance and lower average income than in developed countries. However, this also shows that the Vietnamese market still has ample room for development, industry insiders say.

The report assesses that the crisis of confidence in the life insurance market in 2023 will continue to affect the market this year, given the decline in insurance brand reputation and customers’ being cautious about joining insurance plans.

In addition, competition in the industry has become fiercer with the constantly increasing number of companies, both domestic and international, participating in the market.

Last year, bancassurance - the main sales channel of the insurance industry had to confront a lot of negative information, leading to its first decline in revenue after a decade of steady growth. At the same time, global economic fluctuations and financial instabilities triggered an increase in compensation claims.

According to the Insurance Supervisory Authority under the Ministry of Finance, the industry’s premium revenue decreased 8.3% year-on-year in 2023, with the life insurance and non-life insurance segments down 12.5% and 2.4%, respectively. This was the first year in 20 years that the life insurance industry recorded negative growth.

The average cancellation rate of life insurance contracts in the Vietnamese market after the first year is about 20-30%. For the bancassurance channel, this rate is as high as 73%. "This is a very alarming number," Vietnam Report says, adding that it will negatively affect the sustainable development of the market.

The crisis of confidence emerged last year after clients complained of vague provisions in life insurance contracts that favored insurance companies rather than the clientele. In addition, bancassurance also face criticism as clients reportedly were forced to buy insurance packages as a condition to take out loans.

Also Friday, Vietnam Report announced a ranking of "Top 10 reputable life insurance companies in 2024", featuring Bao Viet, Prudential, Dai-ichi, Manulife, AIA, Generali, Chubb, FWD, Hanwha Life, and Cathay Life.