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Low penetration a pointer to growth: insurance execs talk up VN prospects

Update: December, 01/2014 - 08:08

The Vietnamese insurance market holds huge promise, something that both domestic and foreign companies find irresistible. The CEO of Global Insurance Corporation (GIC), Phan Hoang Chung Thuy, and the Chairman of its giant German partner ERGO, Torsten Oletzky, speak to Viet Nam News about the non-life insurance market in Viet Nam.

Torsten Oletzky, Chairman of ERGO

What has your company done to maintain its position as one of the world's largest insurance companies amid the economic meltdown?

The world economy has seen some slowdown. But as an insurer you have to think about longer periods. Our investment decisions are always long-term. The cooperation with GIC is an excellent example for this approach. When we decided to do business together and to invest in GIC, we did not just evaluate how the economy would develop in the next two or three years. Our objective is a long-lasting relationship that will still be successful after 10-15 years and beyond.

Of course, these days the economic outlook is a bit more difficult than it used to be. Given this we have to look for profitability. Our mantra is to focus on customer value and profitability. We would rather give up some top line premium than make too many compromises on the bottom line.

ERGO is a German-based company - more than 50 per cent of its business is generated in Germany. Germany is a very strong and profitable but slow-growing market. We have no population growth any more like Viet Nam and we have economic growth rates of only around 1 or 2 per cent.

So, from the German base, we are looking for markets with better growth prospects because of demographic dynamics. We believe that the Vietnamese and other Asean markets offer exactly that strong prospect for profitable growth.

Our strategy was to build on the strong base in EU and in Germany and to expand in Asia, mainly Southeast Asia. We already maintain a successful presence in India and China, and in Viet Nam we hold a 35 per cent stake in GIC. Recently we acquired a company in Singapore, and the region will probably see more acquisitions by us.

ERGO operates in some other Asian countries too. How do you compare the potential of the Vietnamese insurance market with others in the neighbourhood? How much does it contribute to your company's business in Asia?

First of all, Viet Nam is one of the countries with a very large population. With a very young, well-educated population, the economic potential of Viet Nam will remain very good at least for the next two or three decades. I believe that while the insurance industry is still in a very young stage, there will be significant growth. And it is helpful for a company like GIC to have a professional, experienced partner like ERGO who has experience of doing business in about 30 different countries.

In Viet Nam, we are writing around 20 million euro premium, which is about 5 per cent of our Asian business. And I am optimistic that it will be more than 5 per cent a few years from now.

Viet Nam still has a very low insurance penetration, but we at ERGO are convinced that the insurance market will sooner or later grow significantly. The insurance income relative to GDP in Viet Nam is still less than 1 per cent. In developed markets, it is typically 3 to 4 per cent. ERGO maintains good business in Viet Nam and our plan is to grow here. Our partnerships with electricity company EVN and the reinsurer Viet Nam National Reinsurance Corporation (Vinarea) are important and promising. We see good chances to develop the company. We have not focused too much on growth in the early stage of our co-operation, because we wanted to have professional processes in place first. But now we believe that we are in a position to grow with the market and maybe even a bit faster than the market.

What should Viet Nam do to attract more investors?

As said, I think Viet Nam has very good economic prospects. In order to develop the insurance market, the Government and the insurance regulatory body will be even more successful if they focus on professional conduct. It will be helpful to encourage companies to use risk-based models like ERGO does in pricing. This step will encourage companies to install professional risk management and to manage capital needed based on economic necessity.

If governments and regulators do not set very high standards and do not enforce rules, it is very difficult for those who play by the rules to be successful if others compete based on lower standards. ERGO has a strong interest in high standards because they secure the long-term development of a market. High standards are beneficial for sustainable growth and high quality. If I was a regulator or politician, I would focus on establishing standards that ensure professional conduct by all market players.

Phan Hoang Chung Thuy, CEO of GIC

Your corporation has set its sights on becoming one of the five biggest non-life insurance companies. Are you on course to achieve this target? What are you doing to reach the goal?

Yes. We always focus on our goal to be one of the top five. We are aware that this is a big challenge for an eight-year-old insurance company. However, thanks to the advantage of having strategic shareholders, young and dedicated human resources, appropriate business strategies, insights into the local market, and practical solutions to meet the demands of customers, we have been on the right path to achieve the goal.

The Vietnamese insurance market only opened its doors a short time ago and is still developing. With ERGO's support, our company has acquired new expertise from the international market that allows us to provide the best services for customers. We have adopted generalized linear models (GLM) in pricing for motor physical damage insurance. This is one of the most state-of-the-art pricing models with high accuracy and new benefits to our customers.

Before 2013 your company targeted corporate customers, but now you have started to focus on individual clients. Why?

[Having] EVN and Dong A Bank as our strategic shareholders, the company has the opportunity to approach corporate clients and quickly develop this segment by providing construction, erection, fire, explosion, and aviation insurance services. Now and in future, we are also focusing on retail customers. We have established a wide network that serves the whole country and enables us to offer comprehensive services to all clients.

Our focus has been on individual customers, especially for motor insurance. Therefore I am confident that the company will achieve great progress in this segment. Specifically to expand our retail business, we have successfully developed new motor insurance products like Professional Protection, Smart Saver, and Maxi Saver with early success. These products are competitively priced to bring real benefit to customers.

In our opinion, the retail segment is a promising, untapped market. More investment is needed in product development to develop attractive, simple products like motor and healthcare insurance to meet customers' expectations. We are allocating time and resources for this. The company treasures its customers' trust and is committed to delivering services to them in accordance with our core values of "Reliability, Dedication and Professionalism".

How do you see the non-life insurance market now and next year?

In 2010 and 2011, Viet Nam's non-life insurance market recorded impressive growth rates of 24 per cent and 20 per cent. Over the last two years, as a result of the global economic downturn, the market slowed down to single-digit growth of 7 per cent. Nevertheless, thanks to positive regulatory policies adopted by the Vietnamese Government recently, in 2014 the economy has shown signs of recovery. In tune with these positive moves, the insurance market has also started to become dynamic again with expectations of double-digit growth.

The year 2015 will still be full of challenges as the effects of the inflation and economic crisis have not completely passed. However, according to figures on the recovery of the market this year, we believe the market is on track to recover. This will provide an opportunity to those companies who manage to grasp it and come up with their own solutions to this challenging question. As for GIC, we are well prepared for challenges and difficulties to achieve more success in 2015. — VNS



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