|Ly Nhon — File Photo
"I believe that life insurance products with a focus on investments have a great future in Viet Nam," Ly Nhon , chief financial officer, AIA Vietnam and an International financial expert, told the Viet Nam News on the outlook of financial offerings.
What's your assessment of the Viet Nam insurance market?
After an exciting development period, it seems that investment linked products, especially unit linked, are falling into a down cycle alongside the recession of the economy.
I am sure that the challenging economic conditions and the market uncertainty creating consumer reluctance to buy equities had an impact on the growth of life insurance products with a focus on investments but there will be phases where certain types of life insurance products will grow faster than others. However, I strongly believe that life insurance products with a focus on investments are playing, and will continue to play, a key role in the life insurance and financial industries.
Many customers believed that at this point of time, if they buy insurance products, it is likely that they will buy the ones with basic protection benefits, high sum assured but low premium such as term life. What do you think of this trend?
It is something that can be expected. The beauty of the life insurance industry is that it offers a well-diversified life insurance product portfolio that can meet the various needs of customers. There will always be a need for life protection products. In fact based on a study by Swiss Re, for every US$ 100 needed for protection in Viet Nam, there was only $8.6 of insurance in place leaving a significant gap of $ 91.4. So it is not a surprise that there are a significant number of customers that are looking for protection products, given the current significant insurance protection gap. Furthermore, I believe that in challenging economic conditions, Vietnamese will tend to prioritise protection over investments as investment opportunities are less attractive and disposable income are lower.
Is it right time to develop investment-linked products for the Vietnamese market?
Given our current challenging economic conditions, customers may prioritise their money towards protection products or traditional savings products to provide coverage to their loved ones over investment-linked products. However, the market share for investment-linked products is still very significant and I believe that it is still the right time to develop more investment products so that customers can have more choices. It is usually good to invest in equities when markets are low. Arguably, the Vietnam equity market could rise significantly. Furthermore, the life insurance penetration rate in Viet Nam is still low so there is room for all types of life insurance products as there are so many Vietnamese without or with not enough life insurance protection.
Commenting about the development of insurance products at different markets, it is said that in developed countries, protection products with a low premium and a high sum assured are in higher demand, while in developing countries people tend to prefer insurance products with both savings and protection benefits. However, Viet Nam does not seem to follow this trend as more and more customers have recently been interested in products with a focus on protection. Is this trend temporary or is the Vietnamese market developing more quickly than others?
I think that it is a little bit of both. In certain aspects the Vietnamese life insurance market is developing more quickly. For example, more developed markets have yet to embrace the Universal Life products which are products that have flexible premium and death benefit features whereas it has been a strong selling product for over seven years now in Viet Nam. I also believe that during the first several years of the life insurance industry in Viet Nam, we only offered savings products so now that protection products are available and Vietnamese are more aware that life insurance is not just savings but also protection they are catching-up on savings products, creating a momentum towards protection products.
What is the future of investment-linked products in Viet Nam?
I believe that life insurance products with a focus on investments have a great future in Viet Nam. It is only the beginning, and similar to other developed markets these products will hold a significant market share. The number and type of life insurance products with a focus on investments are still limited in Viet Nam so as life insurance companies introduce more products into the market it will become more and more important just as in other developed markets. It is in the life insurance companies' interest to develop more investment-linked products.
Do you think that Vietnamese people are still not well aware of the importance of life insurance, which could be the reason for the low life insurance penetration rate in the country? How could the situation be improved?
I think that the low life insurance penetration is mainly due to the lack of awareness of life insurance products. In developed markets, it is second nature for the majority of the population to have insurance protection if they have dependents and/or financial obligations. It is part of financial planning to have savings, investment and insurance protection. It is not the case for the majority of Vietnamese yet so need to raise their awareness. For a life insurance company, we can do it by offering suitable insurance products, providing information about insurance through the media and also through our distribution sales force.
In your opinion, which are critical factors for the development of investment-linked life insurance products in Viet Nam? Which groups of people should be targeted?
We need to continue to improve the transparency and accessibility of the equity market. This will enable insurers' access to attractive and less risky equities and funds. For life insurance companies, the key thing is to have a good selection of suitable and attractive investment-linked products that can meet the needs of Vietnamese. We would need to have a capable distribution sales force that can advise customers on the product features. Along side this, we need to raise awareness about the products so that our customers can understand what the products are. A stable and growing equity market will help build policyholder confidence during the early phases of the products in Viet Nam.
The target market can be very wide, as investment-linked products can come under many forms – single premium, regular premium or flexible premiums; can cover a wide range of risk – life, critical illness, disabilitity; are applicable to different type of protection – personal coverage to business coverage. — VNS