Vietnam’s Non-Life Insurance Sector: Outlook for Foreign Players

Vietnam’s non-life insurance sector is witnessing growth, driven by accelerating demand for commercial lines products and the country’s appeal as a hub for foreign direct investment (FDI). With recent regulatory changes providing a stable outlook, the sector is set to capitalize on both domestic economic expansion and international investment flows.

Stable outlook amid regulatory support

The non-life insurance market in Vietnam has experienced significant premium growth, particularly in commercial lines, reflecting the country’s economic vitality and the growing demand for comprehensive insurance solutions. During the period from 2012 to 2023, the yearly insurance premium revenue of the non-life sector grew by 11 percent on average.

AM Best, a global credit rating agency specializing in the insurance sector, attributes this growth to Vietnam’s strong appeal as a destination for foreign direct investment (FDI), which remains a key driver of the country’s economic expansion. The agency highlights that FDI is also a critical factor in the growth of Vietnam’s non-life insurance sector. As global investors continue to diversify their supply chains, Vietnam is expected to attract substantial FDI, which, in turn, will further fuel economic growth and drive increased demand for commercial lines insurance.

FIND BUSINESS SUPPORT

The recent amendments to Vietnam’s Insurance Business Law have further supported this positive outlook. These regulatory changes, focused on enhancing risk management, internal controls, internal audits, and actuarial standards, are expected to improve the industry’s risk governance and financial conduct. This regulatory shift aims to create a more robust and transparent market environment, attracting even more international players to Vietnam’s non-life insurance sector.

Property insurance: A key growth driver

Among the various segments of the non-life insurance market, property insurance has emerged as a significant growth driver. Government investments in renewable energy, transportation, and large-scale infrastructure projects have contributed to the rising demand for property insurance. As Vietnam continues to develop its infrastructure, the need for comprehensive coverage in these sectors is expected to grow, providing a substantial boost to the non-life insurance market.

Moreover, as more foreign businesses establish operations in Vietnam, the need for insurance to mitigate risks associated with property, business operations, and other commercial activities will increase.

Foreign participants in the non-life insurance segment

Foreign participation in Vietnam’s non-life insurance segment has significantly shaped the market, with leading companies attracting prominent global investors. From 2019 to 2023, the top 10 non-life insurers, such as PVI, Bao Viet, PTI, and Military Insurance Company (MIC), dominated the market, accounting for 78 percent of total revenue. These firms have maintained their leadership partly due to strong financial backing from state-owned corporations and strategic foreign investors.

For instance, PVI has seen investment from Germany’s HDI Global SE, Oman’s Funderburk Lighthouse, and the International Finance Corporation (IFC). Similarly, Bao Minh Insurance has over 20 percent of its capital held by France’s AXA Insurance Finance Group and Firstland Company Limited. Other key players like VBI and Bao Viet have partnered with international firms, including Hyundai Marine & Fire Insurance, Bangkok Insurance, and China’s PICC P&C.

While companies like BIC, supported by Fair Fax Asia, and PJICO have shown growth, many smaller firms have struggled despite foreign involvement. Companies like Groupama Vietnam, IAG from Australia, and Germany’s ERGO Insurance Group have exited the market or faced declining market shares. The competition remains fierce, with smaller enterprises like GIC, ABIC, and Bao Long finding it difficult to maintain their positions, despite foreign partnerships.

Meanwhile, last year, Korea’s DB Insurance Co., Ltd. (DBI) became a strategic shareholder in two Vietnamese companies: Saigon – Hanoi Insurance (BSH) and Vietnam National Aviation Insurance JSC (VNI). DBI acquired 75 percent of shares in both companies. Additionally, Pyn Elite Fund has increased its stake in MIC, becoming a major shareholder with an 8.1 percent ownership.

Challenges and market dynamics

Despite the promising growth trajectory, the non-life insurance market in Vietnam faces challenges, particularly in the motor and health insurance segments. According to AM Best’s report, heightened market competition has squeezed underwriting profit margins in these areas, partly due to looser underwriting practices. The report notes that near-term pricing competition is likely to constrain technical margins in these segments, posing a challenge for insurers looking to maintain profitability.

FIND BUSINESS SUPPORT

Another factor influencing the market is the current monetary policy. The State Bank of Vietnam reduced the policy interest rate multiple times in the first half of 2023 and is expected to maintain an accommodative stance throughout 2024. While this policy aims to stimulate economic growth, it also impacts the insurance sector by lowering investment yields. Speaking to Insurance Asia, Chris Lim, associate director of analytics at AM Best, points out that “even though insurance companies have increased their asset allocations to higher-risk investments for yield enhancement, investment yields are expected to remain subdued over the near term given the companies’ typically large allocations to term deposits and government bonds.”

Vietnam’s insurance penetration rate, measured by premiums as a percentage of GDP, is only 2.3-2.8 percent, significantly lower than the averages of 3.35 percent in ASEAN, 5.37 percent in Asia, and 6.3 percent globally. This low rate, combined with modest average incomes and limited consumer awareness, indicates substantial untapped potential in the market.

Public confidence in Vietnam’s insurance sector has been undermined by mis-selling scandals in 2023, leading to increased consumer caution and damaging the reputations of several insurance brands. These scandals have also driven a shift in consumer demand toward improved consultation and higher product quality.

Insurance technology segment

The rapid growth of the insurtech sector in Vietnam has been disrupting the traditional insurance landscape since 2018. The sector has seen a compound annual growth rate (CAGR) of 255 percent in net revenue from 2018 to 2022, per a report from report by FiinGroup, driven by Vietnam’s low insurance penetration and increasing demand for tech-driven solutions.

Insurtech in Vietnam primarily focuses on non-life insurance products, though some companies like Momi are exploring the life insurance segment. However, insurtech faces challenges, including limited funding, reliance on traditional insurers, low brand awareness among older consumers, data privacy issues, and an incomplete regulatory framework.

In response, the sector is expected to prioritize service models that complement traditional insurers and boost sales through embedded insurance offerings on platforms like superapps and e-commerce sites.

While the Vietnamese insurtech market is still in its early stages, its growth potential is significant. Adapting products to suit diverse demographics will be key to long-term success.

Regional InsurTech company Igloo has formed partnerships with Zalopay, Lotte Finance, FE Credit, and digital insurer OPES to expand insurance coverage in Vietnam, targeting underinsured communities. These collaborations aim to offer popular insurance products and introduce new, tailored options for tech-savvy Vietnamese consumers.

Through its partnership with Zalopay, Igloo offers Phone Screen Protection via Vietnam’s e-wallet network, which has over 14 million users. With Lotte Finance, Igloo has launched Income Protection Insurance and Car Physical Damage coverage, addressing the economic challenges of layoffs and salary cuts.

Additionally, Igloo has teamed up with OPES and FE Credit to provide Accident and Liquid Damage (ADLD) insurance for mobile devices, integrated with loan plans, catering to the growing consumer demand for electronics protection.

Growth projections and market potential

Looking ahead, Vietnam’s non-life insurance market is expected to witness significant growth. Projections indicate that the market size, measured by gross written premium, will reach approximately US$5.75 billion in 2024. Additionally, the average spending per capita in the non-life insurance sector is anticipated to amount to US$57.79 in the same year, according to data from Statista. The market is projected to maintain a steady annual growth rate of 4.55 percent between 2024 and 2028, resulting in a market volume of US$6.87 billion by the end of this period.

When compared to global markets, Vietnam’s non-life insurance sector remains relatively small, with the United States expected to generate the highest gross written premium at US$3.37 trillion in 2024. However, the growth trajectory of Vietnam’s market underscores its potential and significance in the broader economic landscape.

Summary

In conclusion, Vietnam’s non-life insurance market is poised for continued expansion, supported by robust FDI inflows and favorable regulatory developments. As the country’s economy grows and diversifies, the demand for comprehensive insurance products is set to rise, presenting significant opportunities for both domestic and international insurers. Despite the challenges posed by competitive pressures and monetary policy, the long-term outlook for the sector remains positive, with strong growth potential on the horizon.