Vietnam's new law to stifle insurance sales growth – AM Best

The law is expected to allow policyholders to choose products they need at competitive prices.

A new report by AM Best suggests that changes in Vietnam's laws regarding the distribution and purchase of insurance products through bancassurance channels will likely hinder sales growth, particularly for life insurance products. 

The amended Law on Credit Institutions, effective in July, aims to enhance financial conduct and consumer confidence in bancassurance channels by prohibiting credit institutions from bundling non-compulsory insurance products with financial services. 

This move is expected to allow policyholders to choose products they need at competitive prices, albeit presenting short-term challenges for insurers.

“Bancassurance is an important distribution channel, especially for the life segment, accounting for approximately 20% of total life insurance premiums and 14% of total non-life insurance revenue in 2022,” Ken Lau, senior financial analyst at AM Best said in a report. 

“Some insurers derive a higher proportion of premiums from bancassurance due to strategic partnerships or corporate affiliations with banking groups.” he added.

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However, amid complaints about unfair sales practices and subsequent regulatory scrutiny, bancassurance revenues may have peaked. Many banks witnessed significant declines in insurance service revenues in 2023 compared to the previous year.

The fallout has had a notable impact on the insurance sector, with premiums declining by 8.3% to $9.2b in 2023, marking the first decrease in a decade. This contraction was primarily driven by a 12.5% year-over-year decline in life insurance premiums, according to estimates from the General Statistics Office of Vietnam.

This sentiment by AM Best was echoed by analysts from MB Securities Company and Yuanta Vietnam Securities Company last month, which also warned of the regulation’s strain on bancassurance sales.