Demand for various insurance products will significantly increase and support the revenue growth of insurance companies, says Viet Dragon Securities Joint Stock Company (VDSC) in a recent report.
VDSC believes that insurance business will boom on the back of a forecast GDP growth rate of 6.0-6.2% per year for at least the next five years and the burgeoning middle class in the country. Vietnam's middle class is expected to double to 33m people by 2020. In addition, the insurance penetration rate is low at present.
In particular, health insurance and motor vehicle insurance will continue to grow strongly thanks to the expanding middle class. Other insurance lines like property and fire are showing a recovery after the recession of 2013-2014. Furthermore, the trade war between China and the US will provide opportunities for property insurance and cargo insurance because more foreign companies are expected to move their production from China to Vietnam.
In addition, new and revised regulations covering different classes of insurance create a legal framework for the introduction of new products and promote product diversification as well as stimulate demand for existing products.
The proportion of insurers' revenue generated through the bancassurance channel has increased from 5% in 2012 to about 10% in 2017. Because banks and consumer credit companies often require borrowers to buy insurance as a condition for granting them credit, this distribution channel has great growth potential.
Business conditions and divestments
Moreover, insurance business conditions are becoming more favourable as the government plans to attract more foreign investors. The Ministry of Finance is drafting a decree that would ease insurance business conditions and encourage foreign insurance companies to become more involved in the industry in Vietnam.
In addition, the government's divestment plan for the insurance industry is expected to accelerate in 2019. This will be a catalyst for growing cooperation between domestic insurance companies and foreign investors.
Although there are many favourable conditions surrounding the insurance industry, VDSC says the sector also faces several challenges. Natural disasters could be more serious than forecast. Nat CATs are the biggest risk for insurance companies due to their unpredictability and the high level of losses they can cause.
In addition, insurers are facing increased competition from the compulsory health insurance programme of the government. From 1 December 2018, new rules took effect extending compulsory social Insurance contributions, including healthcare, to foreigners working in Vietnam.This may cause the demand for commercial health insurance to decline.