Insurance market needs to regain credibility

Mr. Tran Nguyen Dan, a lawyer and a lecturer at the University of Economics in Ho Chi Minh City (Photo: Saigon Investment)

Mr. Tran Nguyen Dan spoke with Saigon Investment that the time has come for insurance companies to reconsider their methodology and reinvent themselves in a new market in Vietnam.

Journalist: - Sir, to put it very bluntly, are incompetent and negligent consultants the main cause of the Vietnamese life insurance market losing credibility?

Mr. Tran Nguyen Dan: - I see that most of the consultants are people who do not know anything about insurance, and they are introduced to the industry for a job where they receive a good income. So, who can blame them? In my opinion, they are not entirely at fault, but it is the recruitment process that is to blame for bringing in flashy agents on high salaries, without letting people know that this is a very difficult profession to survive and requires a great deal of responsibility towards customers. The sales department puts pressure on the training department, and it requires consultants to find customers quickly.

A life insurance contract is a financial contract that not everyone has knowledge of. While life insurance products follow the buyer through a very long journey, it is necessary to be consulted carefully about the needs of the person buying the insurance and to recommend suitable products to that person. For a long time now, the consulting work has not been achieved satisfactorily for customers.

In developed markets, it is very difficult to become an insurance agent, as one must study for about 52 hours in specialized knowledge and law, and then be allowed to take the exam. And the exam is also very difficult, and not everyone can easily pass the first time. But after passing, they are not allowed to act as agents right away but must sign an application to allow employers to check their information to see if they are reputable persons.

In Vietnam, the first time when life insurance was deployed, the training was relatively good, and participants had to spend a lot of time studying to become an agent. But from around 2010, when companies massively increased their business activities, the goal of sales came first. It is said that a hired consultant just needs to sell the product, and the company will take care of the rest, which should not be the case.

Currently, there are more than 900,000 life insurance agents in the market. A good agent can live with this job and the income is enough to live on. However, by the end of 2022, the new mining revenue of the market was about VND50,000 bln, so an agent only has about VND55 mln in new mining revenue. According to the commission set by the Ministry of Finance for agents it is 40 percent, so an agent only has an income of about VND22 mln per year.

On this amount alone, an agent cannot survive. This proves that there are many people who enter the profession and then leave before the year is over. A large number of clients are consulted by uninformed new agents and then they leave their jobs, so the client is deserted.

- Sir, you mentioned the responsibility of the recruitment department and the sales department, and these departments are all under the insurance company. But when something goes wrong, why do companies assume that it's just the insurance company?

- Firstly, we do not deny that life insurance is important to the economy and to many people. In 2022, more than VND40,000 bln was paid for customer benefits, and companies have invested more than VND600,000 bln back into the economy. However, when I go back to the saying that there are only a few worms that make a soup go bad, then in my opinion with more than 900,000 agents the market has quite a lot of unwanted worms!

Secondly, to make the market green and clean, we must take measures to catch and remove such worms. It is the life insurance companies that have set the annual growth target too high, and they always hold on to the dream that despite the economic crisis, despite the downturn in other industries, life insurance still grows by more than double digits, and that puts pressure on growing sales. With a focus on sales, the rest is ignored. Therefore, life insurance companies have placed too much importance on sales rather than quality and overemphasize on the number of agents rather than the quality of agents.

Thirdly, the management agency needs to give clear instructions or have regulations for penalizing wrong deeds. I think it is necessary to strongly punish according to the revenue ratio so that the people who do wrong are afraid and will not dare to do wrong again.

- Sir, not only the sales agent channel is facing complaints about people, but the insurance channel through the bank is also making many people frustrated when many savings customers are forced to buy life insurance policies. In your opinion, how can this sales channel develop in a more healthy way?

- First of all, it must be confirmed that the insurance sales channel through the bank is only a sales channel of the insurance company, which is collectively known as the organizational agent. I think this channel is very important. Like in Europe, people buy insurance through banks mainly. The level of qualifications of bank staff is quite high, and they have quite good financial knowledge, so they have become suitable people to advise on complex financial products such as life insurance.

However, in the Vietnamese market if a problem emerges banks turn to only their one insurance company. To obtain an exclusive contract, the insurance company must give a large sum of money to the bank, called an upfront fee. This amount will be disbursed according to bank sales. Problems then started appearing and besides the high commission, the upfront cost of the exclusive right is an attractive sum for the bank, so they are forced to sell insurance at all costs.

Developing sales is like growing a tree that must be planted as a young sapling and which is then fertilized to increase sales, but many banks do not want to wait. They immediately force sales down to the banking consulting department. A bank employee has to advise on bank products and is under pressure from Key Performance Indicator (KPI) on deposits and loans, and with insurance the employee must certainly achieve sales.

Hence the source of the problem is the huge upfront payment to the bank. The Ministry of Finance cannot manage and supervise the insurance sales activities of banks, because the Ministry of Finance does not have the power to manage the bank. According to regulations, the Insurance Supervision Administration is allowed to manage and supervise the sales of insurance enterprises, but whether the Insurance Supervision Administration dares to inspect the banks under the management of the State Bank of Vietnam is a big question.

- Sir, for more than 25 years, life insurance has been present in Vietnam, but so far only about 11 percent of the population has signed up for life insurance contracts. It is forecast that by 2025 this number will increase to 15 percent and by 2030 it will be 18 percent. Will such goals cause life insurers to continue racing to meet targets?

- I don't understand what insurance companies base that goal on. What is the basis for saying that it is necessary to achieve that goal for economic development? Currently, not only in Vietnam but also in the world, people are doing a lot of research, and there is no clear judgment that the development of life insurance will pull up the GDP growth rate.

The development of the life insurance market is good for social security, and no doubt it contributes to the economy, which is not a disputed fact, but saying that it is the main driving force for economic growth is not true. We should aim to see how much we will grow the insurance market each year, and how to reduce the number of customer complaints.

If we aim to grow the insurance market at a too-high rate, we will certainly have a garden of worms, so to speak. So, what we need is a steady-growing market, not a bull market.

- Thank you very much.