Cooperating with insurers to provide insurance products to customers through branches and transaction offices of banks (bancassurance) is becoming a lucrative service.
Banking and insurance M&A
In 2018, cooperation between banks and life insurance companies experienced a strong growth. This was presented by the exclusive distribution contract of life insurance companies' products. Accordingly, when signing this cooperation contract, each bank will only be allowed to sell products of their partner insurance company.
Some notable deals that took place in 2018: Techcombank exclusively distributes Manulife's life insurance products for 15 years, which is similar to cases between VPBank
and AIA, Sacombank
and Dai-ichi Life
... To be a part of the deal, insurance companies have to pay banks an initial fee which is often referred to or understood as a cooperation fee.
According to unofficial data, Techcombank
has collected about VND 1,000 billion, and a few other banks also earned from several hundreds to thousands of billion dongs from insurance companies. This cooperation fee depends very much on the number of customers and the average asset value of each customer. The greater the number of customers and value of their assets, the more cooperation fees banks will charge. In addition, insurance companies will also have to pay commissions on each product that the bank sells to its customers.
There have been no notable deals since the beginning of 2019, however, the whole market is waiting for the hundreds-of-million-dollars “marriage” between Vietcombank and FWD Insurance Company (Hong Kong). The "welcome fee" is worth up to USD 400 million. This will probably be the most valuable deal in the history of cooperation between a bank and an insurance company. After this deal, the market will also expect the collaboration of BIDV and some life insurance companies because BIDV has not cooperated exclusively with any insurer to date.
High growth rate in 2019
Spending tens of millions or even hundreds of millions of dollars to get the signature of banks means that insurance companies expect to sell a large number of products through this trading channel.
According to the Ministry of Finance, the total premium revenue of the life insurance market in the first six months of 2019 is estimated at VND 48,134 billion, up 28% over the same period last year. In particular, the total insurance revenue gained via banking channel (bancassurance) is estimated at VND 8,300 billion, accounting for 17.2% of the total market revenue, while this figure for the year 2018 was only about VND 10,352 billion, accounting for 10%.
This result is also reflected in the amount of service fees that banks have charged insurance companies. Accordingly, VIB is the bank with a record growth rate, reaching 432% in the first six months of 2019. Next is Sacombank with the growth of 137%. Following are TPBank and Orient Commercial Joint Stock Bank with 104% and 70% growth rate respectively. In terms of the amount of money collected, the Military Bank (MB) and VPBank collected about VND 1,700 and 1,300 billion respectively in the first six months of 2019. This result shows that Vietnam's insurance market is still potential and there is still plenty of room for banks to increase revenue from selling insurance products.
Increasingly fierce competition
With Vietcombank or BIDV expected to participate in the distribution of insurance products in the near future, the market will soon witness a fierce competition among banks as the fee that banks collect from insurance companies are very attractive.
Normally, banks will be entitled to almost all insurance fees collected by insurance companies in the first year of the insurance policy. From the second year onwards, insurers will enjoy almost the entire value of the contract. To boost sales of insurance products, banks also offer very attractive bonuses, which can be up to 50% of the first year's premiums. The more money a customer spends, the more rewarded a banker will be. In order to increase competitiveness, employees are often willing to redeem customers 20-30% of the first year's premium from their bonuses.
Some bankers also said that there has been a fierce competition among banks in the distribution of life insurance products. Accordingly, customers are having increasingly more choices of products, payment methods and participation fees. For example, to attract customers, insurance companies have allowed them to pay quarterly, even monthly. In addition, some insurers are ready to pay even if customers die from suicide, or allow policyholders to buy more products for their loved ones, or offer incentives with additional health insurance policies.
It is clear that customers are enjoying a lot of benefits from using insurance products. In order to maintain the momentum of growth, more simple and affordable products are needed to reach the people who have average income instead of high income as before.