How to control bancassurance

Mr. Ngo Trung Dung, Deputy General Secretary of the Vietnam Insurance Association

>> Authorities clamp down on banks forcing insurance on customers

Both the State Bank of Vietnam (SBV) and the Ministry of Finance have recently issued instructions on bancassurance. These instructions include inspections and examinations of insurance companies and brokers in order to prevent situations in which insurance companies affiliated with banks "force" customers to purchase new insurance in exchange for preferential loans or offer to invest in affiliated products, which is illegal.

The Business Forum Magazine’s reporter spoke with Mr. Ngo Trung Dung, Deputy General Secretary of the Vietnam Insurance Association to learn more about this topic.

- What are your views and comments on the said move by the state authorities?

It is critical to recognize that the relationship between insurance companies and their agents (banks) is one of authorization. Insurers may delegate tasks such as consulting, introducing and selling products, arranging for the conclusion of insurance contracts, and collecting documents to serve claim settlements and insurance payments to agents in accordance with the provisions of the Insurance Business Law.

Breach of agency contracts, whether personal or institutional, can occur depending on a number of factors, including the insurer's regulations and compliance control procedures, the agent's professional ethics, and insurance enterprises' training activities.

Businesses face limit ations in inspecting, supervising, and sanctioning bank employees who sell insurance under the bank's organizational model. This is due to the fact that they are bank employees rather than insurance company employees. In some cases, inspection and supervision of Bancassurance channels at certain life insurers have been ineffective, resulting in the problems described above.

It is worth noting that customers are "forced" to buy insurance through a bank channel because related life insurers intend to do so. This is simply because they will lose credibility if customers are "forced" to purchase insurance that they do not need. If the customer then cancels the insurance policy, both the customer and the insurer will suffer significant losses.

- How would you rate the number and activities of insurance companies, agents, and reinsurers in relation to the size of the current market? Also, how do insurance companies adhere to regulations governing capital mobilization and investment activities, particularly in high-risk industries?

The market currently has 31 non-life insurers, 19 life insurers, and 2 reinsurance enterprises operating. There are approximately 800,000 active insurance agents. The number of insurance and reinsurance companies and agents is not excessive when compared to the size of the market.

When engaging in capital mobilization and investment activities, insurance companies must follow the provisions of the Insurance Business Law and other applicable laws. Because insurance is a specific business, it is also subject to strict inspection and supervision by state management agencies such as the Ministry of Finance.

- Bancassurance is thought to have been very active in recent years; what solutions, in your opinion, should be implemented to ensure that the relationship between banks and insurance is healthy, increases efficiency, and does not jeopardize consumer rights?

Since the 1960s or 1970s, bancassurance has become a prominent insurance sales channel, and it is critical to ensure that the relationship between banks and insurers is healthy, efficient, and does not jeopardize consumer rights. Insurers are implementing a variety of solutions to address shortcomings and improve the quality of Bancassurance.

First, insurers are calling customers to offer advice on insurance products, address any issues with insurance contracts, and answer questions.

>> Insurance business: a lucrative "piece of cake" of banks

Second, anonymous shopping is performed to evaluate the quality of advice provided by bankers selling insurance, and banks are asked to take disciplinary action against employees who violate the insurance selling process or provide incorrect advice to customers.

Third, insurers are reviewing training and sales quality control, as well as strengthening customer communication to remind them of their rights and obligations, as well as the characteristics of insurance products.

Fourth, bank employees are trained to ensure compliance with insurance business laws and the code of professional conduct for insurance agents.

There are approximately 800,000 active insurance agents. 

Fifth, banks are being asked to create regulations to penalize employees who sell insurance.

However, some of these solutions may not be applicable in all circumstances. Customers, for example, may respond positively to welcome calls in order to obtain easier loans with lower interest rates, making it difficult for insurers to accurately assess the situation. As a result, insurers must constantly evaluate and improve their strategies to ensure that the Bancassurance channel remains healthy and efficient.

- So, in your opinion, which solution can solve the root of the Bancassurance channel's problems (for example, customers are "forced" to buy insurance)?

The Ministry of Finance and the State Bank of Vietnam have recently taken decisive action to address issues raised by the press and relevant management agencies.

The Ministry of Finance, in particular, will strengthen its inspection and supervision of Bancassurance activities by insurers, while the State Bank will increase its monitoring of Bancassurance activities by banks. Both agencies have also set up hotlines to receive public complaints. I wholeheartedly support these measures, and I am pleased to learn that the Ministry of Finance is also proposing new regulations in the Insurance Business Law and related guidance documents.

The draft guidance document for the new law on insurance business includes additional requirements for banks acting as insurance agents. For example, banks must record or videotape the insurance sales process. This may increase the workload and costs for insurers, but it is necessary to protect the interests of customers and insurers. I have also heard that there will be stricter regulations on the prepayment costs that banks charge insurers.

In addition to these measures, I propose that the second year insurance policy retention rate (K2) be controlled as a key performance indicator for Bancassurance activities. If the K2 rate is high, it could mean that many customers are being "forced" to buy insurance products they don't need. As a result, if the Ministry of Finance and the State Bank of Vietnam can evaluate and monitor Bancassurance activities using the K2 index, it could be used as a standard for evaluating the quality of Bancassurance activities, similar to the nonperforming loan classification standard currently used by banks for credit activities. If the K2 rate falls below the standard, banks and insurers must explain why and implement growth-limit ing measures.

In my opinion, with these comprehensive solutions, the shortcomings in Bancassurance activities will be resolved.

Sincerely, thank you!