According to Viet Dragon Securities Corporation (VDSC), because of the strict and prolonged social distancing applied since mid-July until recently, insurance sales slowed down in the third quarter of 2021.
Strict social distancing measures might lead to insurance revenue growth drivers weakening for both the life and non-life insurance sector in the third quarter.
In particular, many companies ceased to operate on a large scale. For those that are still in operation with low capacity, high input prices and spending on pandemic prevention are reducing profits, thereby reducing employees' incomes, leading to a reduction in non-essential necessities, including insurance. Besides, the government's public investment programs have also slowed down.
According to the recently announced data of the General Statistics Office, insurance premium revenue in the third quarter of 2021 is estimated to increase by 7% over the same period. That is the lowest growth rate in the quarters so far this year.
Saigon Securities Incorporation (SSI) stated that, in the second half of the year, premium revenue growth may be affected by the fourth COVID-19 outbreak as the majority of products are still distributed by direct sales and authorized dealers.
Bao Viet Group - a leading enterprise in the insurance industry - has deployed various solutions to cope with the current situation, including an online sales platform, online insurance policy issuance, esign, eclaim (online compensation), and preparing to deploy Baoviet Life's new insurance core to serve online business and administration, etc.
However, in SSI's view, it will take longer for these solutions to generate a revenue growth boost.
Recently, the Ministry of Finance has submitted a draft amendment of the Insurance Business Law to the Government. The amended draft is expected to take effect from 2023. SSI believes that, in general, the revised draft law allows insurance companies to be more autonomous in business activities. Regulatory agencies will not interfere too deeply in the operations of insurance companies as in the past.
Instead, the role of the regulator will be to prioritize regulatory oversight, promote transparency and the healthy development of the insurance market.
This revised draft adds several new provisions to guide insurance companies and amends some previous regulations to avoid confusion when applied in practice.
A notable point is the introduction of the capital adequacy ratio along with stricter requirements on information disclosure. The draft Insurance Business Law does not specify which capital management model will be applied. However, SSI expects it to be risk-based capital management (RBC) model, and details will be specified in the sub-laws.
Citing SSI, this revised draft prohibits insurance companies from engaging in real estate, except when the real estate is used as the business headquarters or working location of the insurance company, along with some other exceptions.
"We think this draft law amendment is a positive move for the long-term development of the insurance industry," said SSI.
With changes in capital management models, there may be pressure to raise capital at certain insurers. However, these regulations have a transition period of 5 years, from 2023 to 2027, providing a buffer period between the legal framework and practical implementation. Therefore, this will not cause sudden changes to the short and medium-term outlook for the industry.
The insurance industry has experienced positive growth in recent years. The growth momentum of this field has been maintained continuously in recent years with a compound annual growth rate (CAGR) of 20% in the period from 2016 to 2020.
In the first half of 2021, the insurance premium revenue of the whole market increased by 17% compared to the same period last year, of which life insurance premium revenue increased by 22%, non-life insurance increased by 7%.
Although the insurance industry's growth slowed down in the third quarter of 2021, the insurance premium revenue of the whole market in the first nine months of 2021 is estimated to still increase by 13%; in which, life insurance premium revenue increased by 17%, non-life insurance sector increased by 5%.
According to VDSC, the recovery of Vietnam’s insurance industry will start from the fourth quarter of 2021, when higher vaccination rates allow the gradual reopening of economic activities. In terms of product structure, the low-interest-rate environment is likely to persist after the pandemic is contained to support the economic recovery, investment-linked insurance will still lead to the growth of new life insurance premiums.