Banking-insurance cooperation: Profits increase, customers feel frustrated

Need to understand and do well about the insurance channel through the banking system.

Will account for 50% of the bank's total fee income

According to statistics from Yuanta Securities Company on 17 listed banks, bancasurrance accounted for an average of 37% of the total fee income in 2021. The company also expected that bancassurance's contribution to revenue at some banks would increase significantly after signing contracts with exclusive insurance partners. Therefore, the total revenue from bancassurance will account for about 50% of the total fee income of the entire industry by 2025.

Specifically, VietinBank signed a 16-year exclusive bancassurance distribution contract with Manulife in 2022. Vietcombank also signed a 15-year exclusive bancassurance contract with FWD and an upfront fee of about VND9,000 billion, which is the highest published fee in the market.

MSB also signed a 15-year exclusive partnership agreement with Prudential. Sacombank and Dai-ichi Life have also re-negotiated and signed a new exclusive contract in 2021. Similarly, VPBank and AIA also re-negotiated in 2021 with higher exclusive fees, increasing total premium revenue from new insurance by 38% over the same period in the first four months of 2022.

Facing the situation of forcing customers to buy insurance, the authorities have repeatedly corrected this activity.

In Directive No. 01 on the organization of performance primary tasks of the banking sector in 2022, the State Bank has required credit institutions operating as insurance agents to strictly abide by the provisions of the law on insurance business; strengthened internal inspection and control over insurance agency activities throughout the system; and strictly handled cases that require customers to buy insurance when granting credit to customers.

The Ministry of Finance also affirmed that they would strengthen the inspection and examination of insurance distribution activities through banks to ensure that insurance sales through banks strictly comply with the freedom to choose insurance companies and products suitable to customers' needs.

According to the latest data from the Vietnam Insurance Association, by the end of May 2022, life insurance premium revenue was estimated at VND66,715 billion, up 17.2% over the same period last year and revenue from the non-life insurance market was estimated at VND27,564 billion, up 13.1%.

This growth shows that Vietnam’s insurance market has a lot of potential, especially when the Law on Insurance Business (amended) was passed at the 3rd Session of the 15th National Assembly on June 16, 2022 and will take effect from January 1, 2023. This amended law is expected to bring a new breeze to the insurance market, having a positive impact on the long-term development of the insurance market.

According to Yuanta’s experts, the income of banks will be less dependent on lending in the future. Fee income will become the driving force behind profits, with two main contributing factors: bancassurance revenue and card service fees. Banks with a large network and potential customers have a huge competitive advantage in selling insurance.

Therefore, many banks set high profit growth ambitions in 2022. To achieve this goal, they will promote the development of digital banking to increase customer market share. Simultaneously, they will enhance the collection of service fees and insurance, strengthen the digitization of services to contribute to the strong growth of demand deposits (CASA), reducing the cost of capital and the cost of income ratio (CIR). In particular, to increase customers' access to insurance, many banks apply digital technology. For example, MB has developed a system that allows customers to buy insurance policies online on its application. As a result, MB achieved accumulated insurance sales of nearly VND800 billion in the first five months of 2022.

Don't make customers angry

Thanks to great benefits to the bank, forcing customers to buy insurance when transacting is a "problem" that has been warned by the authorities many times. Recently, there has been a lot of information about customers suing banks because they were forced to buy insurance, improperly performing the contract. This information has adversely affected one of the important activities to develop the financial market.

In fact, many customers do not understand the benefits of different insurance types, and they often buy insurance just to get a favorable interest rate or to comply with loan terms. Thus, the cross-selling of insurance does not achieve benefits for the parties. Additionally, to fulfill the norms and requirements assigned by the bank, many employees do not deeply understand insurance products to give useful or correct advice. This situation adversely affects customers' perception of banks and insurance businesses, leading to customers terminating insurance policies earlier than the term.

Tran Dang Phi, Deputy Chief Inspector of the State Bank of Vietnam (SBV) affirmed that the customer's participation in insurance is voluntary, if the staff of credit institutions force customers to buy insurance, it is a violation of the law, and they will be sanctioned. Therefore, the State Bank has issued many guiding documents as well as required credit institutions to absolutely not allow customers to buy insurance when borrowing capital.