Detailed guidance needed to have new insurance agency policy run smoothly

A customer during a policy consultation. Some banks have had to temporarily suspend the sale of insurance products, causing their revenue to decline sharply since the law took effect. Photo courtesy of Baoviet Life Corp

HÀ NỘI — Insurance companies and banks expect the State Bank of Vietnam to issue detailed guidance on implementing the insurance agency regulation under the new Law on Credit Institutions, because they are confused about the policy.

According to the insurers and banks, Article 113 of the revised Law on Credit Institutions, which took effect from July 1 this year, regulates commercial banks are allowed to carry out insurance agency activities in accordance with regulations of the Law on Insurance Business and the State Bank of Vietnam. It means that the Law on Credit Institutions allows commercial banks to consult and offer insurance products to customers.

However, Clause 5 of Article 15 of the Law on Credit Institutions prohibits banks from ‘linking’ the sale of non-mandatory insurance products with the provision of banking products or services in any form.

The regulation has been issued as despite unwillingness, some bank customers were forced to buy insurance products introduced by bank staff to get bank loans. Therefore, the new policy is aimed at stopping the bancassurance cross-selling mechanisms.

According to industry insiders, not only banks and insurance companies, but also management agencies at localities have different understandings of the law’s Clause 5 of Article 15, especially the concept of ‘linking’. While some said the regulation means banks are not allowed to force bank borrowers to buy insurance products, others thought the regulation means when making loan applications for customers, banks are not allowed to make any advice or offer insurance products.

According to a leader of an insurance company, who declined to be named, his company has insurance consulting desks at many bank branches and it sells insurance products independently from banks’ products. However, after consultation with both State management agencies and legal experts, his company still cannot find whether it is legal or not if it advises and offers customers with insurance products and customers are free to choose whether to buy the insurance products or not.

Due to the confusion, some banks have temporarily suspended the sale of insurance products, causing their revenue to decline sharply since the law took effect.

A representative of BIC Insurance Company said that in the first two days of July 2024 alone, the company’s insurance sales through banks decreased by up to 50 per cent. The main reason is that many bank branches temporarily stopped selling insurance and were waiting for specific guidance.

The insurance industry recorded double-digit premium revenue growth in about ten consecutive years before 2023. However, insurance premium revenue declined in 2023 and the first quarter of 2024 following an insurance crisis, during which consumer trust was said to be at an all-time low after numerous scandals broke out. The crisis has negatively impacted the entire insurance industry and has forced management authorities to take action to rectify the sector.

Since the crisis, regulatory agencies and insurance companies have taken measures to reassess the situation, considering it an opportunity to cleanse and readjust the market after a period of rapid growth. The focus is on developing the market sustainably, transparently and safely.

Solutions have been proposed by the Ministry of Finance’s Insurance Supervisory Authority (ISA) to enhance market transparency and safeguard the rights of insurance participants.

According to Phạm Thu Phương, deputy director of the ISA, the department last year completed the inspection of five insurance companies, including three life insurance companies and two non-life insurance companies. The inspections found that insurance companies violated regulations on supervising and managing insurance agents. Accounting of insurance companies were also still negligent, Phương said, adding the ISA carefully reviewed the violations and imposed fines.

In 2024, according to the approved plan, the ISA will inspect six insurance companies. — VNS