Microinsurance in Vietnam: An Industry Overview

Microinsurance is gaining significant traction worldwide, especially in developing countries. While these insurance products may have modest individual value, their potential is lucrative when extended to vast customer populations. In the context of Vietnam, we explore the current state of the microinsurance sector and identify areas where foreign insurance companies can find value.

Microinsurance is an emerging trend that deviates from the conventional consumer insurance focused on motor vehicles or homes. It enables individuals to protect lower-value assets, such as personal computers or mobile phones. This concept has gained immense popularity, particularly in emerging economies.

The reason behind this surge is that the loss of even a modest asset like a bicycle or an electronic device can have a significant impact on a person’s financial stability.

In this light, there are myriad opportunities to develop micro-insurance products in Vietnam.

Microinsurance market in Vietnam

Despite being piloted in Vietnam for over a decade, the microinsurance model has not yet reached its full potential, with limited participation from the population. However, the market holds significant untapped demand, especially considering that 6.4 percent of the population belongs to poor and near-poor households, along with other vulnerable groups.

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As of mid-July 2022, PVI Insurance Corporation has made notable progress by establishing cooperation agreements with 56 out of 63 farmer associations across provinces and cities. The Farmers’ Union has reported a registration count of nearly 10,000 members for agent training and certification exams.

Another key player, Agriculture Insurance Joint Stock Company (ABIC), has introduced a strategic product called Bao An Credit in collaboration with its parent bank, Agribank. Presently, this product provides coverage to approximately 60 percent of Agribank’s customers and encompasses about 20 percent of the bank’s outstanding loans.

Furthermore, the Ministry of Finance has granted approval to three insurance enterprises—Prudential Vietnam Life Insurance Co., Ltd., Manulife Co., Ltd., and Dai-ichi Vietnam Life Insurance Co., Ltd.—to offer exclusive insurance products tailored for low-income individuals. As of June 2022, Manulife Company had issued 8,586 active microinsurance policies, amounting to a total premium value of VND 718 million.

Types of microinsurance in Vietnam

The microinsurance products available in Vietnam still require improvement, as they are predominantly focused on health care insurance, non-medical expense support, and life insurance. However, the market lacks comprehensive property and agricultural insurance products, which presents significant opportunities for growth and development.

Microinsurance products in Vietnam encompass various categories based on the insured subject.

Personal insurance

• Medical and health care insurance: This coverage supports the insured individual by providing financial assistance for hospitalization and surgical expenses according to the agreed terms.
• Accident insurance: It provides coverage for any accidental injuries suffered by the insured person.
• Insurance for death or total and permanent disability: This insurance covers the insured person’s death or occurrence of total and permanent disability within a specified timeframe. Additionally, funeral support is offered.
• Old age savings insurance: This type of insurance focuses on providing savings benefits for the insured individual during their old age.

Property insurance

• Insurance for damage to production machinery, equipment, plants, and animals: This coverage involves the payment of an agreed-upon insurance amount in case of damage to machinery, production equipment, plants, and owned animals.

By expanding the availability of property and agricultural insurance products, the microinsurance sector in Vietnam can address a significant gap in the market and better meet the needs of the population.

Premium limits on microinsurance in Vietnam

For microinsurance products that cover life and health risks, the maximum insurance amount for each policy cannot exceed five times the annual per capita income of a near-poor household in urban areas.

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For microinsurance products that protect against property risks, the insurance amount should not exceed the market value of the insured property at the time of enrolment. Additionally, it should not exceed five times the annual per capita income of a near-poor household in urban areas, based on government regulations at the time of product deployment.

The annual premium for each insurance policy of microinsurance products should not exceed five percent of the annual per capita income of a near-poor household in urban areas, as determined by the government when the product is implemented. The premium amount must correspond to the insurance benefit provided by the policy.

Term limits on microinsurance products

Life insurance companies are granted the authorization to offer microinsurance products aimed at safeguarding against life and health risks, limited to a maximum duration of five years.

Non-life insurance companies and branches of foreign non-life insurance companies are permitted to provide the following micro-insurance products:

• Micro-insurance products are designed to protect against life and health risks, with a duration of one year or less.
• Micro-insurance products are intended to mitigate property risks, with a maximum term of five years.

Health insurance companies are granted the opportunity to offer the following micro-insurance products:

• Micro-insurance products are specifically designed to protect against life risks, with a duration not exceeding one year.
• Micro-insurance products focused on addressing health risks, with a maximum term of five years.

Regulatory framework and legal requirements for microinsurance providers

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The legal framework governing microinsurance products in Vietnam is defined by the Law on Insurance Business 2022 and Decree 21/2023/ND-CP. These regulations explicitly outline the legality and regulatory aspects of microinsurance in the country.

They serve as guiding documents that insurance companies and other stakeholders must comply with, providing a clear framework for microinsurance operations and ensuring adherence to regulatory standards.

Microinsurance providers in Vietnam

In compliance with Vietnamese legislation, the entities eligible to offer microinsurance are outlined as follows:

• Insurance enterprises: This category includes non-life insurance enterprises, life insurance enterprises, and health insurance enterprises. These entities, operating under the regulations governing insurance business, are authorized to provide microinsurance products. Additionally, branches of foreign non-life insurance enterprises that have been established and are operating in Vietnam are also considered eligible.
• Mutual organizations: Mutual organizations established and operating within Vietnam are recognized entities capable of offering microinsurance. These organizations, functioning on the principle of mutual assistance, have the authorization to provide microinsurance products that comply with the regulatory requirements specified by Vietnamese law.

Entering Vietnam’s insurance market

In terms of the participation of investors and partners in investment activities, foreign non-life insurance enterprises intending to establish branches in Vietnam must fulfill the conditions outlined in Decree No. 73/2016/ND-CP.

Furthermore, there are additional requirements that must be met, including the minimum legal capital level of the branch of the foreign non-life insurance enterprise. The specific capital levels are as follows:

• For non-life insurance business (excluding cases stipulated in Decree No. 73/2016/ND-CP): VND 200 billion.
• For insurance business involving aviation insurance or satellite insurance: VND 250 billion.

Legal basis for registration for microinsurance products

Microinsurance providers are required to register the fundamental principles and procedures used to calculate premiums for microinsurance products prior to their implementation.

To register the basis and method of calculation, microinsurance providers must submit a complete set of application documents to the Ministry of Finance. This set should include:

• A written request, formulated according to Form No. 06 provided in Decree 21/2023/ND-CP.
• A summary of insurance benefits and exclusions associated with the intended insurance products.
• Formulas, methods, and underlying principles used to calculate net and gross premiums.

Building, designing, and developing microinsurance products

The State actively encourages, supports, and facilitates the implementation and engagement with microinsurance products through a range of measures, which include:

• Streamlining administrative procedures to simplify processes and reduce bureaucratic burdens.
• Widely disseminating information and policies related to insurance, specifically targeting microinsurance products.
• Establishing a comprehensive database and promoting the utilization of technology in the design and development of insurance products, loss assessment, and insurance claims.
• Offering partial financial assistance for insurance premiums, with the assurance of funding from the central budget and local budgets. These allocations can be included in the annual state budget estimates or sourced from other lawful financial channels as stipulated by relevant legislation.

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