"The opening of the insurance market will create a fiercer competition for Vietnamese insurance firms as they are facing shortages in high-quality workforce, capital, administrative ability, and the limited ability of developing new products and seeking new growth momentum" said Nguyen Quang Phi. — Photo tinnhanhchungkhoan

HA NOI (Biz Hub) — Vietnamese insurers have been offered great opportunities to expand their market share in the regional market thanks to the formation of the ASEAN Economic Community (AEC).

With total gross domestic product of US$2.6 trillion, ASEAN will represent a large market for insurance products to a population of 625 million.

According to Milliman – a US-based multinational consultancy provider, life insurance penetration rates in ASEAN markets are still at very low levels relative to those in more developed economies.

In 2013, Singapore is the most developed country in the ASEAN bloc and only reached premium revenue of 4.8 per cent of its GDP, which was much lower than that of Hong Kong at 12.1 per cent and 8 per cent in Japan.

Most of the ASEAN countries have a ratio of less than 2 per cent and this will be a great opportunity for life insurers to expand their market share.

Nguyen Viet Loi, director of Institute of Strategic and Financial Policies (Ministry of Finance), said the development of sea transport, road and air routes within ASEAN will be a pre-requisite for the development of new insurance products.

Besides, Vietnamese insurers will have more opportunities for investment abroad, while the local insurance industry will also enjoy significant benefits from the labour force thus helping to address the problem of senior-level personnel in the insurance industry.

Loi said the removal of barriers and differences among AEC member nations will create a fair market for Vietnamese and foreign insurance companies.

Currently, foreign investors are now allowed to own a maximum of 49 percent of stake at local insurance firms, Loi said, highlighting the importance of foreign investors' participation in bettering the administration of Vietnamese insurance service suppliers, as well as in developing new products and improving service quality.

Pressure ahead

Besides opportunities, Viet Nam will have to face many challenges when joining AEC, Loi noted.

This will put high pressure on Viet Nam in reforming its policies in the field as other regional nations are quick to improve their liberalisation policies, Loi said.

According to the Milliman ASEAN liberation index (MALI), which is to measure the openness of life insurance regulatory regimes in ASEAN countries, having regard to their alignment with international standards, Viet Nam ranked seventh among ASEAN countries with a score of 40.

Under the commitments on FTA to liberalise trade in services in 2015, countries have to open up their finance services to enhance the participation of foreign investors. Thus, investors from the AEC members can participate in-depth in the Vietnamese insurance market or vice versa.

Nguyen Quang Phi, director general of Bao Viet Insurance Group said the opening of the insurance market will create a fiercer competition for Vietnamese insurance firms as they are facing shortages in high-quality workforce, capital, administrative ability, and the limited ability of developing new products and seeking new growth momentum.

A strengthened effort from insurance firms is needed to increase their competitiveness, he noted.

Tran Duc Trung, deputy head of Insurance Market Development Division, Insurance Supervisory Authority said it is necessary for both Vietnamese State management agencies and insurance firms to take synchronous measures in order to take advantage of opportunities brought by AEC and realise targets of market development in the field.

The Ministry of Finance should continue to reform the insurance-related legal system, meanwhile insurance firms need to devise more solutions to increase the efficiency of their operations and better the quality of services, he said. — VNS