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

Cross-selling insurance is a fertile land promoted by many banks. Photo: ST

Cross-selling insurance is flourishing

In recent months, Hai Ha (Hanoi) has been repeatedly invited by Techcombank, VIB, and MB to buy insurance. The invitations to buy life insurance and health insurance were rejected by Ha because her whole family of four members had signed up for another company's insurance many years ago.

However, before the enthusiastic offer and attractive insurance package information, Ha said that she was considering whether to buy life insurance or not because several banks were applying for insurance payment via credit card and had a preferential refund rate.

It is not unusual for people to constantly receive offers to buy insurance from bank employees. Among current fee income sources, insurance premium income is increasingly occupying a large market share, making an important contribution to banks’ profits.

Revenue from insurance premiums and growth of banks in the first six months of 2022. Chart: H.Due

According to the financial statements in the second quarter of 2022 of banks with explanations on the income from insurance business activities, except VIB, other banks' income from insurance business and services, insurance service commission, and insurance agent support increased from 11% to 33.3%.

In terms of absolute value, MB was the bank with the highest revenue from insurance services of more than VND5,000 billion in six months. Next was VPBank with VND1,570 billion, Techcombank with VND617 billion, VIB with VND587 billion, TPBank with VND493 billion, and Ban Viet with VND16 billion.

However, in terms of growth value, Ban Viet recorded the highest growth rate of 33.3%, Techcombank was 31.6%, MB ranked 3rd at 30.5%, VPBank reached 19.3%, and TPBank was 11%. Meanwhile, VIB recorded a decrease in growth rate of -6.2% over the same period last year.

The fact that bank employees take advantage of the existing customer base to cross-sell life insurance products has blossomed in recent times, especially when the credit quota (room) assigned by the State Bank of Vietnam (SBV) to banks is gradually narrowing. The narrow credit "room" causes the income from interest to decrease and banks have to look for other revenue sources from fees.

According to the SBV’s latest data, credit growth of the entire banking industry as of July 20 reached 9.27% compared to the end of 2021 and increased by 16.61% over the same period in 2021. The rate was much higher than the rate of 6.47% in the first seven months of 2021. Credit growth strongly in the first months of the year caused many banks to run out of credit "room" that the SBV temporarily granted at the beginning of the year.

Offsetting credit revenue

In the context that almost no credit "room" has affected lending activities, the SBV’s recent view is still consistent with the full-year credit growth target of 14%. As of the end of July, the management agency has not loosened the credit growth room for banks. At the same time, the agency is determined not to loosen credit conditions.

In the face of tight credit growth targets, banks are forced to find revenue from services, including the sale of life insurance.

In the first six months of 2022 alone, the bancassurance market grew by 23%. It is expected to account for around 50% of new fees by 2025.

According to experts, Vietnam's insurance market is considered to have potential with a low penetration rate and average premium. The number of people participating in life insurance is only about 10 million, equivalent to about 10% of the population. The Ministry of Finance plans to raise this to 15% by 2025.

On this basis, banks compete fiercely with each other and large insurance companies also find ways to "squeeze" into banks by signing contracts for exclusive insurance distribution.

For example, VPB is distributing two parallel insurance policies: life insurance with AIA and non-life insurance with OPES. VIB is renegotiating the insurance contract value with Prudential. Similarly, LienVietPostBank is negotiating with partners when the contract with Dai-ichi Life has just expired in May. HDBank is considering and negotiating an exclusive insurance contract with an exclusive insurance partner.

Vietnam Yuanta Securities Company (FSC) said that bancassurance would become one of two sources of growth from fees collected by banks. Banks will continuously recognize prepaid fees amortized from exclusive deals with insurance companies.

FSC expected that bancassurance revenue would contribute more to total non-income, about 50% in the future. In addition to contributing to fee income, bancassurance helps banks exploit many other benefits from customers without having to spend a lot of their capital, thereby boosting their return on equity or return on capital (ROE).