The other side of life insurance
by Thuy Anh
Figures released at a recent insurance conference show that the industry, both general and life insurance, enjoyed a 20 per cent growth in turnover last year, reaching VND25.5 trillion, or US$1.3 billion, under difficult economic conditions.
Of the 27 general insurance companies in operation, 25 posted growth, but many of them, which also do business in capital investment, suffered losses from the insurance side of their business. Losses were a total combined VND264 billion. Still, the figure was VND106 billion less than the losses recorded in 2008.
Among those posting losses were AAA, Aviation Insurance Co, Chartis and even the veteran Bao Minh Insurance Corp.
According to Trinh Thanh Hoan, head of the Insurance Department under the Ministry of Finance, unhealthy competition in the race to win contracts was a major contributor toward losses.
The most common practices were cutting premium rates, widening coverage and increasing promotion.
"The premium cutting race resulted in customer payments that were not adequate to cover risks, and it caused losses to insurers and did harm to market development as well," said Hoan.
He also cited the fact that sales agents tried to sell as many contracts as possible to obtain higher commissions rather than pay attention to risk assessment.
Major State-owned corporations like PetroVietnam and Viet Nam Airlines and leading banks like Vietcombank and VietinBank have their own insurance companies, which leaves others in a more difficult situation and contributes to undesirable competition.
Tran Trong Phuc, general director for Bao Viet, said last year's premium cutting and widened coverage had driven away several foreign re-insurance companies' participation in Viet Nam's insurance market, including big names like Munich Re.
This year, Hoan's department will strengthen management to provide a more transparent legal framework for the insurance industry's healthy growth.
"We will fix a minimum premium level so that insurers will not be able to further decrease their premiums and we will also require insurance companies to set up a reserve fund to protect customer benefits," Hoan said. He noted that insurers should cooperate and not lower fees.
Several industry insiders said the Viet Nam Insurance Association has for years worked on the problem and finally reached an agreement among members. But it was not supported by the Viet Nam Competition Administration Department under the Ministry of Industry and Trade, for fear that it might hurt the insured's rights.
Meanwhile, insurers themselves continued their race, though aware of the peril.
The most popular commerce sites are online auctions and shopping websites, which 40 per cent of internet users have visited, according to a report recently released by market researcher Cimigo Viet Nam.
Online business is one of the areas that has seen the strongest increase of all measured activities in the last few years. Online shopping has increased by 12 percentage points and reached 40 per cent in HCM City and Ha Noi over 2007.
E-banking has become more popular since 2007, with an increase from seven to 11 per cent in the two cities.
Cimigo's Viet Nam NetCitizens Report about internet usage and development in Viet Nam was based on a survey of nearly 3,000 internet users in Ha Noi, HCM City, Da Nang, Hai Phong, Nha Trang and Can Tho.
The report found that, overall, half of urban Vietnamese have already accessed the internet. Nearly 90 per cent of internet users access the web more than once a week and about 70 per cent use it daily.
Currently, an average internet user is online for more than two hours every day. Once a destination mainly for the young, the internet is increasingly used by older residents, with one-quarter of internet users 35 years or older.
The most frequent activity on the internet is information gathering, such as reading the news or using search sites. More than 90 per cent have used such sites and about half use them daily. The internet is also used to conduct research for school or at work by more than half of internet users once a week or more often.
Three-quarters of internet users listened to music and nearly 60 per cent downloaded music. More than 40 per cent watch movies online and one in five downloaded movies. Online games playing was slightly less frequent.
In the communication area, key activities were chatting and e-mailing, with the latter's usage at about 70 per cent. Between 20-25 per cent have sent SMS online and used instant messaging.
Social networking and blogging are used frequently with 40-45 per cent of users visiting forums, blogs and social networks.
Cimigo's Online director Lukas Mira says that "users take a more passive role on these sites, as only 15-20 per cent have personally written their own blogs or posted in forums. These numbers are amazing and clearly demonstrate that enabling and monitoring user-generated content is critical to online strategies for advertisers and publishers alike."
Residents from Hai Phong or Ha Noi were more self-expressive while HCM City appeared more timid, according to the survey.
According to Lukas, people seek edutainment, that is, the coming together of education and entertainment. He said a bold publisher or advertiser could harness this need into online content.
The Prime Minister last week issued a resolution to ensure a stable macro-economy, a reasonable inflation rate and economic growth at around 6.5 per cent this year. To achieve the goal, the Government wants the State Bank to handle monetary policy carefully and flexibly.
The bank is also advised to use tools actively to gradually lower the market interest rate level, which will result in more capital pumped into the economy for its development.
Interest rates will be pushed down via measures such as open market operations and other forms taken by the central bank to inject more funds for credit institutions, according to a State Bank official.
Prior to this, the State Bank had released VND8.2 trillion (US$430 million) to commercial banks on a 28-day term at an annual rate of eight per cent and another VND2.5 trillion on a seven-day term at 7.5 per cent per year to help them decrease interest rates.
It has also increased its open market operations to two sessions per day.
According to Governor Nguyen Van Giau, several major banks managed to offer short-term loans at less than 14 per cent and medium – and long-term loans at 14.5 per cent per year. In some cases, the rate is 12 per cent.
Despite the lending rate being capped at 12 per cent a year by the central bank, banks are still allowed to apply negotiable rates for medium – and long-term loans. Thus, they have pushed lending rates to as high as 19 per cent a year, with many enterprises bemoaning the rate.
Nguyen Viet Quang, deputy director for Vinh Loi Food Processing Company, said his company had received information from a bank to increase the negotiated rate to 17.5 per cent from the previous 13.5 per cent for his company's loan of around VND1 billion.
He was trying to repay the loan early as the interest rate was unbearable, since profit from the production hardly hit 20 per cent.
In the first quarter of the year, credit disbursed by banks in the city grew a mere 0.37 per cent, showing reluctance on the part of enterprises to take out loans. Credit in HCM City usually accounts for one-third of the country's total amount. — VNS