Ha Noi Moi (New Hanoi) newspaper spoke with Association of Vietnamese Insurers' secretary Phung Dac Loc about a new fund that protects insurance buyers in the event that insurers go bankrupt.
Could you explain the privileges insurance buyers will receive from the Insurance Buyer Protection Fund?
The IBPF was set up to pay insurance buyers money that is agreed upon in insurance contracts, in case the insurers go bankrupt or cannot pay them. The funding will come from 0.1 per cent of each insurer's income from the contracts' withholdings. Payment for life and non-life insurances will be different to ensure the privileges of the buyers of the two plans.
If the insurers lose the ability to pay the insurance money or are bankrupted, the IBPF, on behalf of the insurers, will take care of the insurance and compensation money as stipulated in the contracts. In case the contracts are passed from the insurers that lose the ability to pay or go bankrupt to another insurer, the amount of money IBPF is supposed to pay will be directly transferred to the latter.
If insurers are not able to pay, how much can buyers receive?
The goal of the IBPF is to back up the sustainability of the local insurance market. Therefore, it will partly support the insurance buyers if their insurers go bankrupt or suffer losses. With life insurance, the fund will cover a maximum amount of 90 per cent of the insurers' responsibilities, but no more than VND200 million (US$9,600) per person.
If there are various beneficiaries in an insurance contract, the limit amount that the IBPF will pay – VND200 million (US$9,600) – will be given to each buyer, unless the insurers and the buyers have other agreements in place that say differently.
The same ceiling amount applies to health insurance. The fund will have to pay the buyers of non-life insurance in two circumstances. One is when the contracts say that the vehicle's owner has the right to receive the maximum amount of the insurance money regulated by the law, or VND70 million ($3,300) per accident.
With other kinds of non-life insurance, IBPF will pay up to 80 per cent of the insurers' responsibilities but no more than VND100 million ($4,800) per contract.
However, there might have another party in non-life insurance contracts who shares the responsibilities, the re-insurer. Insurance customers will receive their money that is agreed upon in the contracts between the insurers and re-insurers.
One issue that attracts attention is the IBPF's transparency. How will the fund prove itself in that area?
According to the fund's regulations, the use of the funding will always ensure efficiency and transparency in the establishment's revenue and expenditures, as well as its investment activities. All operations are specifically regulated and closely monitored. The fund's income is clearly distributed to three sub-funds, including the Fund for Life Insurance Buyers, the Fund for Non-life Insurance Buyers and the fund for management. The management fund will consist of no more than 0.5 per cent of the total amount that the fund annually collects from the insurers.
The fund's investment from its inactive balance is also clearly regulated: It can buy unlimited amounts of government bonds. It can also buy bonds of enterprises that are guaranteed by the Government by no more than 5 per cent of the fund's idle money from a particular insurer and no more than 10 per cent of the fund's total inactive balance.
Apart from those, the fund will deposit no more than 10 per cent of the fund's idle money from an insurer and less than 50 per cent of the fund's inactive balance into commercial banks that are legally established and operated in Viet Nam. The chosen banks must meet the fund's requirements, such as having healthy finances, efficient business practices and high liquidity.
The fund's annual financial report will be examined by an independent auditing organisation. The fund management council will be responsible for submitting the report to the Ministry of Finance every year. — VNS